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8 retailers that could go bankrupt in the next year
8 retailers that could go bankrupt in the next year
Last year Retail Dive ran its first list of companies in the industry that were most at risk of filing for bankruptcy. Much has changed since then. For one, we’ve run three more watch lists, as Chapter 11 filings reached recession-era proportions. This year, though, each list has gotten shorter, in part because the general aura hanging over retail has changed. It’s become considerably less gloomy. One might even say partly sunny. But one factor has been constant since mid-2017: Sears has appeared on every watch list we’ve run.
Not this time. It’s happened before that we’ve moved a retailer from our watch list to our yearly list of major retail Chapter 11s. But Sears is an odd case. It stayed on our watch list and off our Chapter 11 tracker because it had managed to evade bankruptcy for so long and in so many creative ways. It was starting to seem as though Sears might always manage to stay out of court. The company and former CEO Eddie Lampert — who is one of the department store operator’s largest lenders as he’s funneled hundreds of millions through his hedge fund to keep Sears solvent — were like Wile E. Coyote, forever dodging disasters arguably of their own making.
But Chapter 11 finally came for Sears in October as the company ran into a multimillion-dollar payment on its debt and failed to strike a deal with lenders.
Sears wasn’t alone. The bankruptcies have slowed this year compared to 2017, but they haven’t stopped. In October, one of the biggest players in the mattress space filed for bankruptcy, with plans to close 700 stores. While Mattress Firm’s Chapter 11 wasn’t altogether surprising, given the competitive mattress category and the stagnant pace of change at traditional retailers, it did hint at a larger theme in retail: of younger, disruptive brands breaking the mold and making traditional players think on their toes.
With those major retail bankruptcies as a backdrop, we’re looking again at who in the industry might be vulnerable in a world that keeps shifting. In putting together this list, we relied on data from CreditRiskMonitor, which estimates the risk of a company with publicly traded debt or bonds filing for bankruptcy within 12 months based on several streams of data. Those include financial ratios, credit ratings, a commonly used form of credit analysis (the “Merton” model) and aggregated data patterns from its own subscribers.
CreditRiskMonitor uses all that data to assign a proprietary rating, called a “FRISK” score, that weighs the probability of bankruptcy. A FRISK score of one indicates a 9.99% to 50% chance of bankruptcy within 12 months, and a score of two corresponds with a 4% to 9.99% chance of bankruptcy. (The scores continue to 10, which indicates risk near zero.) While CreditRiskMonitor issues scores for a large chunk of major retailers, many companies don’t have a FRISK score. David’s Bridal, for instance, doesn’t appear on our list, though the retailer missed a debt payment in October and is preparing a possible Chapter 11 filing, a source told Retail Dive this week.
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