Here’s some uplifting news to start your weekend: Retail bankruptcies erupted again last year in numbers not seen since the Great Recession, and the trend is expected to carry into 2019.
That’s the ominous heads-up from Tiger Group, a perhaps not entirely unbiased source that’s in the business of liquidations.
Writing in ABL Advisor, an online publication serving the asset-based lending community, Tiger COO Michael McGrail predicted “strong headwinds” for mall-based specialty retailers and smaller furniture chains in particular, as many decades-old dealers near “the end of their lifecycles.”
See: Is It The End Times For Retail?
Most at risk, he said, are massively overleveraged companies that opened new stores as the economy recovered, only to face a nationwide slowdown in brick-and-mortar sales. The threat looms even larger as the Federal Reserve considers interest-rate hikes that could balloon debt repayments and force restructurings.
Mall-based retailers have their own crosses to bear as the next generation of shoppers — smartphone-addicted tweens — eschew shopping centers, contributing to last year’s 5.5 percent decline in U.S. mall traffic.
The shift in shopping patterns is also reflected in the lower recovery values on liquidations in certain specialty retail channels. “In furniture, hanging a going-out-of-business sign no longer results in the same level of traffic and sales it once did,” McGrail noted.
And against this backdrop, of course, looms Amazon and Walmart.com.
But all is not doom and gloom, acknowledged the grim reaper of retail. Many chains have made significant progress in adapting to the “new normal” by closing unprofitable stores, ramping up their omnichannel capabilities, adding food and other in-store enticements, shrinking showroom size, and signing store-within-a-store deals, McGrail said.
Given all that, the current state of retail can be construed as a normal business sector evolution rather than the overhyped “retail apocalypse,” he allowed.
See: Debunking The Retail Apocalypse
“Nonetheless,” he added, “the unfortunate reality is that brick-and-mortar stores are clearly in the midst of an ongoing shakeout. Irrespective of economic conditions, the [asset-based lending] sector can count on a continued, dramatic transformation of the retail industry.”
