Last year in a post I wondered if 2017 would be the year of the retail bankruptcy. Now that 2017 is in the books we can look back and see that the trend of brick and mortar retailers filing bankruptcy that began in 2016 did indeed continue through last year. No less than 30 major retailers filed bankruptcy in 2017. Over half (52%) were apparel stores. Big names such as Gymboree, Wet Seal, Sports Zone and PayLess Shoe Source all sought relief in bankruptcy court. You can find a more complete listing from Business Insider here.
In addition, many retailers that didn’t file bankruptcy closed stores. It’s estimated that between 8,600 and 9,000 stores closed nationwide in 2017, resulting in over 76,000 jobs lost in 2017. This amounts to more than 10% of all physical retail space in the United States. It’s easy to imagine the ripple effect that bankruptcies and store closings will have on peripheral industries, like suppliers, transportation, and landlords.
As in 2016, the demise of retail outlets is being blamed on changing habits and likes of retail shoppers, primarily the move to online shopping. These preference shifts by consumers make it harder for retailers to successfully reorganize in bankruptcy. Over 50% of retail bankruptcies end in liquidation, compare to about 17% of other business bankruptcies. A good example is Sports Authority. It initially filed as a reorganization but eventually ended up being liquidated. It’s difficult to reorganize when your customer base is eroding and disappearing.
The news isn’t all bad for retailers. Some consumers, including Millennials, who are the largest consumer spending demographic, want the experience of shopping. They want to see and feel the product before they buy. Market research indicates that shoppers prefer a retail store devoted to a single brand over a larger store that offers a number of brands, including the brand the shopper is loyal to. Large retailers such as Sears, BonTon Stores and Neiman Marcus are struggling with this new paradigm. Those three stores are on the S&P list of highest risk business and all have negative outlooks. To put it in popular terms, they’re “circling the drain.”
The bottom line is that you can expect 2018 to be a continuation of 2016 and 2017 as far as retail stores go. Don’t be surprised if many of the names you’re familiar with aren’t around soon.