US: Seven Major Retailers At Risk Of Bankruptcy – Fitch

Seven major retailers in the US are at risk of collapsing within the next two years, according to a new report by Fitch Ratings.  The chains reported by the report include Sears Holdings, 99 Cents Only, Claire’s, Nine West, and Rue21.

The report added that if the companies file for Chapter 11 protection, they are likely to be liquidated, a forecast it made based on the analysis of 30 retail bankruptcies (involving $10.5bn of debt), of which 50% ended in liquidation.  In comparison, just 17% of companies in other industries were liquidated after filing for Chapter 11.

The factors affecting retailers were found to be – declining shopper traffic to malls; the growth of e-commerce; shifts in consumer spending away from apparel and accessories toward dining out and entertainment; and the rise of pricing competition from discount chains.

NAM Implications:
  • Where at: The real results of post-crash retailing emerge in the bottom line, in most countries. Narrow margin businesses, with less scope for absorbing cost, means suppliers need to monitor customer finances carefully…
  • Where headed: This US example is simply the first of an inevitable development
  • Effect on you: A customer going bust owing you £250k, and assuming you are netting the industry average of 5% net margin, means you need to generate incremental sales of £5m to recover…
  • Action: Better to check out the latest finances of your major customers and calculate incremental sales impact, before the liquidator does it on your behalf?
  • Method: £250k/5 x 100 = incremental sales required (simply substitute the amount owing and your net margin)