CNBC The retail industry is facing a potential wave of bankruptcies – here’s why

Hearing so many retailers lament, they have lost anchor stores in the malls and shopping centers, all the while actual traffic and buying are down and the costs of going business is soaring.

So many of our stores have closed or moved to different locations because of cost, LOL mailing lists that were accurate for years now change in months. We used to have a good active 1400 stores in 9 SE states into 2019, now we have about 400.

www.cnbc.com...=1655982090

kEY POINTS
Last week, Revlon filed for Chapter 11 bankruptcy protection, making it the first household consumer-facing name to do so in months.

Now the questions are: Which retailer will be next, and how soon?

After a nearly two-year reprieve, the retail industry could start seeing an increase in bankruptcies later this year, experts say.

The retail industry is up against a potential wave of bankruptcies following a monthslong slowdown in restructuring activity.

There could be an increase in distressed retailers beginning later this year, experts say, as ballooning prices dent demand for certain goods, stores contend with bloated inventory levels and a potential recession looms.

Last week, 90-year-old cosmetics giant Revlon filed for Chapter 11 bankruptcy protection, making it the first household consumer-facing name to do so in months.

Now the questions are: Which retailer will be next? And how soon?

“Retail is in flux,” said Perry Mandarino, co-head of investment banking and head of corporate restructuring at B. Riley Securities. “And within the next five years, the landscape will be much different than it is today.”

The industry had seen a dramatic pullback in restructurings in 2021 and early 2022 as companies — including those that had been on so-called bankruptcy watch lists — received relief from fiscal stimulus that offered cash infusions to businesses and stimulus dollars to consumers. The pause followed a flood of distress in 2020, near the onset of the pandemic, as dozens of retailers including J.C. Penney, Brooks Brothers, J. Crew and Neiman Marcus headed to bankruptcy court.

Including Revlon’s filing, there have been just four retail bankruptcies so far this year, according to S&P Global Market Intelligence. That’s the lowest number the firm has tracked in at least 12 years.

The business model that has been the backbone of western commerce - what I've long referred to as infinite exponential growth - was plainly unsustainable. There's no such thing as infinite growth in a finite system; at some point it had to implode.

The situation in which we find ourselves is, I believe, largely engineered, but it was inevitable. People with the know-how and the means are trying to manage the collapse to their advantage. I don't think it will end well even for them. But it was always going to happen.

a reply to: putnam6

Nieman Marcus heading to bankruptcy? Oh no! Where will I buy a $35,000 paper thin leather jacket now?

In all seriousness they forgot to mention Amazon, the price of gasoline, and inflation as causes. They did mention bloated inventories and consumer shopping habits changing though, which was a nice way to describe the policy of our asshole transportation secretary and the port situation.

a reply to: putnam6

Revlon? I wonder how much the masks had to do with lack of sales? I mean, there had to be less demand as you could not see most of it in use.

Inflation is just the latest problem for retail.

JC Penney was gone years ago. I don't see them being any more hurt by inflation than Sears, K Mart, or Radio Shack are.

originally posted by: incoserv
The business model that has been the backbone of western commerce - what I've long referred to as infinite exponential growth - was plainly unsustainable. There's no such thing as infinite growth in a finite system; at some point it had to implode.

The situation in which we find ourselves is, I believe, largely engineered, but it was inevitable. People with the know-how and the means are trying to manage the collapse to their advantage. I don't think it will end well even for them. But it was always going to happen.

None of this would have happened to this extent without the overreaction to COVID, not the illness the over-reaction restrictions, shutdowns, and panic from the media and politicians. It wasn't only outright manufactured it was enhanced and promoted as the only way to get through, It was BS and it is showing why.

But my friend inevitable? come on such a hard recession wasn't in store this early. COVID was real and it required a response, but our response was so detrimental to our economy and livelihoods we made is worse and brought it upon us quickly and with a ferocity that wouldn't have happened organically IMHO.

originally posted by: drewlander
Nieman Marcus heading to bankruptcy? Oh no! Where will I buy a $35,000 paper thin leather jacket now?

From the actual designer. Neiman's has almost nothing of their own on the racks, they carry brands that almost all have their own retail locations, their upsell was that they are all under one roof. It's an obviously antiquated model which is why places like Penny's, Macy's and others also struggle.

All my favorite local stores have closed in the last several years in my small-ish town. I frequented them regularly, as they were my favorites.

Sears
Ace Hardware
Dunhams Sporting Goods
Elder Beerman/Carsons
JC Penney

originally posted by: putnam6
None of this would have happened to this extent without the overreaction to COVID, not the illness the over-reaction restrictions, shutdowns, and panic from the media and politicians.

I disagree, this type of business model was failing slowly, the Rona just expedited the process.

It's not that I love our corporate retailers, but losing a large chunk of them at the same time isn't good either. We have always had manufacturers come and go, but never dozen or so at a time. We had that initially and we are seeing that even opening up we are losing loads of small retailers.

There are pockets of areas still, doing well. Florida always our #1 state is booming almost statewide, yea it's still way off from our ATHs but it's damn encouraging.

Sorry to burst the bubble, but, this is nothing new. The decline started years ago. I used to work in advertising. The Company I worked for designed and built the point of purchase displays that you saw in stores. We had some of the biggest brands in the world as clients.

Several things contributed to the downfall. They include the cost of retail space, retail theft and the push for the $15 an hour minimum wage.

The cost of retail space means that it is no longer economical to have the large retail stores. Retail theft and a rising minimum wage adds to that expense. So instead of large stores with dozens of employees they are going to small shops with few employees. The consumer can go in, look at what's available, make their selection, pay for it and have it delivered to their home from a warehouse. I'm a big guy. A few weeks ago I went to a Big and Tall shop to buy a suit for my Nephew's wedding. They had nothing in stock. When I questioned this, it was for the reasons that I mentioned. The salesman then had me measured, and gave me a card that had their sizes that fit me listed on it. I looked at a few examples, decided what I wanted, went home and ordered it online. I had it three days later and everything fit.

That's the trend. We used to do thousands of displays at a time. Now they do a few high end displays for a few main locations. ( I was laid off in 2018)

Recent events have only accelerated the trend. COVID didn't really hit large retailers that hard. Democrat overreach clobbered smaller vendors. Now look at the trend in retail theft in Democrat controlled areas. That is unsustainable, yet, when stores close, the retailer is made out to be the bad guy.

A local grocery chain, wanted to close a store in a heavy crime area. The City told them that if they close that store, they might as well close the rest of them in the City as well. Anybody else does that, it's extortion.

a reply to: jjkenobi

I used to shop at Montgomery Ward.

Times, they are a changin'.

originally posted by: projectvxn
I used to shop at Montgomery Ward.

Perfect example, along with Sears, of how failing to adapt to changing consumer patterns leads to insolvency.

a reply to: projectvxn

I remember Monkey Ward's.
Our local one got real bad on Customer Service. Warranties was the big reason. They kept getting pressure from Corporate to keep their numbers up. That and that their Auto Center would perform a lot of unnecessary work. Brother in Law went in for a new alternator belt and was told that the alternator was bad. ($300 in 1992) I looked at it, changed the belt and spliced a "cut" field wire and the car was fine.

Nobody in our area shed a tear when they went out of business.

K-Mart shot itself in the foot when it bought Sears. Yes. K-Mart bought Sears and formed a new company named "Sears Holdings". As soon as that happened the major brands (Nike, Reebok, Levi Strauss and others) pulled their merchandise from Sears, because they didn't want their "brand diluted" by having it sold in K-Marts. The main problem I had with it was that K-mart went to the Craftsman brand for their tools. By that time Craftsman was crap. K-Mart had their own brand "Benchtop" that was a lot better. (I still have a set of Benchtop tools)

originally posted by: AugustusMasonicus

originally posted by: projectvxn
I used to shop at Montgomery Ward.

Perfect example, along with Sears, of how failing to adapt to changing consumer patterns leads to insolvency.

Which is ironic, because both started off the catalog model as America was expanding. You could get almost anything (for the time) delivered. It was like an early Amazon then they decided to get brick and mortar department stores at malls. That was their short term boom and long term folly.

originally posted by: CriticalStinker
Which is ironic, because both started off the catalog model as America was expanding. You could get almost anything (for the time) delivered. It was like an early Amazon then they decided to get brick and mortar department stores at malls. That was their short term boom and long term folly.

Sears had a chance to out-Amazon Amazon in the early 2000's but they kept doing the retail store thing. Dinosaur mentality from their execs was their undoing.

originally posted by: AugustusMasonicus

originally posted by: putnam6
None of this would have happened to this extent without the overreaction to COVID, not the illness the over-reaction restrictions, shutdowns, and panic from the media and politicians.

I disagree, this type of business model was failing slowly, the Rona just expedited the process.

It's always in flux it's just those abrupt changes, failing slowly I can handle.

It's all about timing, and as always Im talking about my niche women's bridal and social apparel business, more importantly, the women's bridal and social apparel wholesale representative business, a dying business within a struggling industry. But we could have squeezed another 2-3 years out of it and we would have been fine.

We are still good for now all considering, the piece of cheese is smaller but there are a lot fewer mice left to feed off that cheese. Retail and wholesale.

It's a fickle business, it has all the concerns of other businesses, but like now what are the retailers in our #1 state Florida worried about? protests, the elections, and as always the hurricane season all as the state overall is booming.

but for what it is worth that doesn't mean there will be loads of weddings, with loads of guests like we had up till 2019. The retail customer was always there, they could be buying elsewhere or buying less, but now the customer numbers are down, and purchasing power is down.

High-end, top-shelf? is fine and always will be, but the masses? who knows?

It's like my brother used to joke one day it will be just one buyer one sales rep and one manufacturer, and when that one buyer says no the business will collapse

originally posted by: putnam6
It's all about timing, and as always Im talking about my niche women's bridal and social apparel business, more importantly, the women's bridal and social apparel wholesale representative business, a dying business within a struggling industry. But we could have squeezed another 2-3 years out of it and we would have been fine.

In a case like yours the differentiator is service, not price. There is nothing wrong with being higher priced than the chains or online options if you offer stellar service because those other places are typically ambivalent when it comes to satisfaction.

Just some insight from a sales professional who works for the not-cheapest company.

Oh, what will they do now??? Oh yes, what they have been planning for years. You all think this is a new dangerous thing for them, but it's part of the overall plan. Get rid of all the store and by the way that's getting rid of all the staff in those store, and go internet. You only have to look at the most successful company that's doing this AMAZON. Now tell me what they are going to do. Easy aint it.

a reply to: AugustusMasonicus

Probably a mix of complacency and survivor bias. The old execs and companies made it through a few of the other economic downturns and leaned into "we're household names".

There also used to be an almost generational war when it came to the internet and smartphones. People used the logic that some would always want to come in a store and see the product without asking what market share that is. And many just refused to believe smartphones would take off because they themselves couldn't operate one comfortably. But smartphones were a huge catalyst for online commerce, many missed that.

originally posted by: CriticalStinker
There also used to be an almost generational war when it came to the internet and smartphones.

You can still see that in some of the boomer/geezer replies, that confounded tech ain't gerner terk mer merney!