Retail in the Red: BDO’s Bi-Annual Bankruptcy Update — 1H 2018

Over the first half of 2018, retailers experienced an expanding economy marked by high consumer confidence, rising wages and historically low levels of unemployment. Still, according to the latest Retail in the Red: BDO’s Bi-Annual Bankruptcy Update, more than a dozen retailers have filed for bankruptcy over the period, and the pace of store closures remain high.

Retailers are continuing to consolidate underperforming stores and wrestle with declining foot traffic as shifting consumer preferences and the rise of mobile and e-commerce drive customers out of brick-and-mortar stores—especially those found in malls. Many retailers, struggling with burdensome levels of debt placed onto them by their private equity owners, have resorted to Chapter 11. Though, on a positive note, these brands have generally favored reorganization and store closures over total liquidation.

To keep up with the ever-evolving retail landscape, many retailers are re-evaluating their market strategy entirely. Some brands are looking toward pop-up shops as a physical way to connect with consumers without the commitment of a lease, and others have turned their attention to direct-to-consumer marketing as opposed to selling their products through retail stores.

Some retailers, especially those that are too highly leveraged to fund a revamped market strategy, may find themselves in trouble throughout the remainder of 2018. With the threat of additional tariffs—which would likely drive up the prices of goods and disrupt the supply chain—as well as gradually increasing interest rates from the Federal Reserve, we can expect to see additional store closure announcements this year. But make no mistake: the overall positive economic signs bode well for retailers that are financially sound and prepared for calculated transformation.
 
To read more about this year’s retail bankruptcies and turnaround efforts, view the full report here.
 
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