18 Retailers at Risk of Bankruptcy as Consumers Tighten Wallets in 2022

Party CIty
Ben Unglesbee|Senior Reporter
Source: www.retaildive.com, October 2022

As demand wavers and capital gets harder to find, some could face default and bankruptcy, including last year’s digital darlings.

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Last year was a great one for many if not most in and connected to the retail industry, except for its restructuring experts. (But don’t worry about them — the bankruptcy lawyers and consultants had a sensational 2020.)

Revlon and Olympia Sports aside, bankruptcies remain slow after years of “apocalypse” and the surge in the pandemic’s first year. The travails of 2020 pulled forward many bankruptcies that might have happened this year or next. Those reorganized were (theoretically) left with cleaner balance sheets, trimmed store footprints and stronger financial positions.

Yet retail is a big industry with many players, not all of them on solid footing. Consumers are still capricious. The digital transformation is ongoing and expensive to adapt to. Supply chains are complicated and difficult to master, or even fully understand. COVID-19 is still with us. Demand is as difficult to predict today as it ever was.

With stimulus payments gone, consumers under pressure from inflation, capital markets tighter and business inputs still expensive, the financially or operationally weaker players who rode a wave of high demand and a quiet promotional environment are at risk once again.

In a summer report on vulnerable retailers, Creditntell cited high inflation, falling demand and “bloated” inventory levels as pressures on margins and profits.

“Potentially the biggest stumbling block will be the consumer,” Albert Furst, chief operating officer of Creditntell, said in an interview.

One proprietary measure of bankruptcy risk in the market comes from CreditRiskMonitor’s FRISK scores, which specifically measure the probability of a company filing for bankruptcy within 12 months. The scores factor in various data, including trading volatility, financial metrics and analytics from the firm’s own platform that is often used by company credit managers.

This time last year the retail companies that carried the very lowest FRISK scores, indicating the highest risk of bankruptcy, numbered just three.

As of Sept. 30 this year, the number had surged to 18, a cohort size much more in line with pre-pandemic risk levels. Of that, nine retailers had a FRISK score of 1, indicating a 9.99% to 50% chance of filing for bankruptcy within the next 12 months.

Another nine had a FRISK score of 2, representing a 4% to 9.99% chance of bankruptcy by CreditRiskMonitor’s calculations.

Among those companies with the lowest scores are digitally savvy operators that held initial public offerings in recent years, including The RealReal, Stitch Fix, ThredUp and Digital Brands Group. That perhaps should not come as a surprise, given the slump in apparel amid inflation on food and gas as well as the high expenses of e-commerce and the losses many digital darlings racked up before (and after) going public.

FRISK scores only cover those companies with publicly traded stocks or bonds. Credit ratings and other measures of default risk turn up other names as well.

Those with the lowest ratings from Creditntell include, as of July, Tuesday Morning, Party City, GameStop, Rite Aid, Bed Bath & Beyond, Casper and Joann.

Meanwhile, Fitch Ratings’ most recent lists of loans of concern include a handful of retailers, including Belk, Men’s Wearhouse, Boardriders and Premier Brands Group (a reorganized incarnation of the old Nine West Holdings).