Retail Bankruptcy Update
With changes in consumer spending, some retailers are choosing to restructure or close stores. Retail bankruptcies have picked up in the first half of the year, following a lull in 2022. Pivoting from a 13-year low in retail bankruptcies, there have been 11 major filings through April, two in May, one in August and three through September 15, for a total of 17 bankruptcies.
Retail Bankruptcies According to BDO's Retail in the Red*
*Data for 2023 does not include the 4 bankruptcies that have happened between June 30th and September 15th to compare data across equivalent time periods.
All of the retailers that filed for bankruptcy in the first half of 2023 primarily sold discretionary products, with the possible exception of a chain of pet supply stores. These retailers have suffered as consumers focus their spending on essential goods due to limited budgets. In some cases, these retailers filed for bankruptcy because they could not sufficiently improve their ecommerce model enough to support operations and customer expectations.
Retailers That Filed for Bankruptcy Through June 2023
|Company||Filing Data||Description||Bankruptcy Strategy||Bankruptcy Result or Latest Intent||Stores as of Petition Date||Store Closures Announced|
|Retailing Enterprises LLC (Invicta Stores)||05/30/23||Watch retailer||Restructure debt||In process||24||0|
|Christmas Tree Shops||05/09/23||Specialty décor stores||Reorganization||Liquidation||82||82|
|Bed, Bath & Beyond1|
|Homefurnishing||Market as going concern, including the buybuy Baby business.||Liquidation of all brick-and- mortar stores. Sold IP for BB&B and buybuyBaby brands.||480||896|
Wedding and special occasion apparel
Going concern sale process and "soft" sales in their retail locations to monetize inventory.
Court approved going concern sale to CION Investment Corp. for no cash purchase price (just assumption of debt). Kept 195 stores open.
Catalog based marketer of apparel, shoes, cosmetics, and accessories
Received $85 million credit bid for certain litigation assets.
Two other winning bids totaling $97 million for different packages of assets.
|Boxed||04/02/23||E-commerce wholesaler of pantry consumables||Sale of its Software- as-a-Service business, Spresso, as a going concern to the prepetition first lien secured lenders.||Sold Spresso software business and IP; winding down retail operations.||0||0|
Conduct store closing sales and liquidate all assets.
|Full chain liquidation.||39||39|
|Tuesday Morning||02/14/23||Off-priced home goods||Close unprofitable stores and shift resources to profitable locations.||Full chain liquidation after failing to find going concern buyer. Converted to Chapter 7 liquidation.||464||464|
|Nielsen & Bainbridge||02/09/23||Wholesale home decor supplier||RSA to sell assets within 60 day timeline||Sold equity to DIP lender; confirmed plan.||0||0|
|Independent Pet Partners||02/05/23||Chain of pet stores||Going concern sale process for liquidation of underperforming stores.||Sold 66 stores to lenders in credit bid; confirmed liquidation plan.||159||93|
|Party City||01/17/23||Party supply store||Restructuring||Cancelled about $1 billion in company debt and turned all of its equity value over to the retailer's lenders.||823||64|
|Performance Powersports||01/16/23||ATV, RV and motorcycle dealerships||Sale process||Sold virtually all assets to DIP lender for $10 million credit bid; proposed liquidation plan.||0||0|
|Forma Brands4||01/11/23||Holding company of beauty brands||Sale process||Sold to lenders for $723 million credit bid.||0||0|
Information sourced from SEC Filings, Bankruptcy Court Filings, Company Press Releases, and Debtwire Stores numbers are closest approximations
In a somewhat distressing trend, the number of retailers restructuring in bankruptcy, as a percentage of total bankruptcies for that year decreased, while the percentage of liquidations and asset sales has increased. Three retailers reorganized in 2019, ten in 2020, five in 2021 and one each in 2022 (Revlon) and 2023 (Party City). As a percentage of total retail bankruptcy filings by year, retailers reorganizing have decreased from 42% in 2021, down to 20% in 2022 and only 8% for the first half of 2023.
Outcome of Retail Bankruptcy Filings in BDO Retail in the Red Reports (as a percentage of total bankruptcies for that year)
Outcome of Retail Bankruptcy Filings in BDO Retail in the Red Reports
|2023 (through June*)||2022||2021||2020||2019||Total|
*Outcome of one bankruptcy is in progress and thus not yet
In addition, the first half of 2023 saw a proportionally large number of retailers enter bankruptcy with the intent of consummating a going concern sale only to find themselves unable to find buyers willing to make a viable offer, thereby forcing these retailers to liquidate their assets. For example:
- Bed Bath & Beyond and Buy Buy Baby sold their intellectual property after closing all stores.
- Tuesday Morning hoped to close unprofitable stores and restructure but ultimately sold all assets to a liquidator.
- Christmas Tree Shops intended to stay in business after closing approximately 10 stores, but couldn’t find a buyer, and liquidated all stores.
Changing consumer habits exacerbated by inflation, high interest rates, and increased competition from online retailers may be why these bankrupt companies struggled to find going concern buyers and ended up liquidating their businesses. Private equity or strategic buyers may not be interested in buying big-box, mainly brick-and- mortar businesses that lack a strong ecommerce model. The feeling is that these businesses cannot compete with the retail giants that have mastered ecommerce and omnichannel retail.
Store Openings and Closings Update
|Company||Type of Retailer||Closings||Openings||Net|
|Retailers with 50 or More Closings/Openings in 2023|
|The Children's Place||Apparel||110||0||(110)|
|Bath & Body Works||Specialty – Bath / Skin care||50||90||40|
|Ross Dress for Less||Discounter - Apparel/Home||20||100||80|
|Sephora at Kohl's||Specialty – Beauty / Cosmetics||0||250||250|
|Ralph Lauren||Specialty – Luxury Lifestyle||0||85||85|
|Tractor Supply||Specialty – Rural / Lifestyle||0||80||80|
|Store Openings in 2023 (Announced Prior to 2023)|
|Company||Type of Retailer||Closings||Openings||Net|
|Casey's General Stores||Convenience||140||140|
|TJX Companies||Off-price apparel / Home Goods||105||105|
|Total Store Openings in 2023 (Announced Prior to 2023)||0||2,350||2,350|
|Bankrupt Retailer Store Closings||1,717||0||(1,717)|
|Total Store Closings & Openings||2,562||3,280||718|
- Y-T-D actuals used as available.
- Equitable distribution assumed if not otherwise specified with multi-year announcements.
- Information sourced from SEC Filings and Press Releases
- Numbers Rounded
- Data as of August 2023
Nevertheless, in a recent report from Coresight Research, foot traffic in top-tier malls was up by 12% in 2022 compared to 2019 and, on average, top-tier malls were more than 95% leased last year. High-end property developers have reported high demand for retail space in recent quarters. This perhaps shows further bifurcation of the retail industry. Discounters and dollar stores are doing well, as are high-end retailers.
Although we continued to see more store openings (about 3,300) than closings (about 2,600) through August of 2023, many retailers are gradually shrinking the square footage of their store footprint, netting less overall space. For example, while the pharmacy category is performing well in terms of sales, some pharmacies are closing stores. Smaller format stores are replacing large format stores and retailers are leveraging in-store partnerships, where the host store’s operating square footage is reduced to make way for the in-store partner.
The vast majority of store openings continue to be by dollar, discount and grocery stores as Americans hunt for deals and off-label products to better balance their budgets. Additionally, these categories tend to see a greater portion of their sales coming from brick-and-mortar stores over ecommerce, as these categories lend themselves to impulse and bulk purchases.