Keeping up with the number of retailers adding their names to the U.S. bankruptcy courts docket is becoming an increasingly arduous task.
City Sports, American Apparel, Sports Authority and Quiksilver have all sought Chapter 11 protection in recent months, and now rumors have surfaced that Pacific Sunwear (PacSun) and Eastern Mountain Sports’ operator Vestis Retail Group are on the brink of bankruptcy.
The wave of recent filings along with new rumors has led to a scramble to find an explanation or common thread among the brands and retailers struggling financially.
“I don’t really see a common denominator,” said Matt Powell, a sports industry analyst with The NPD Group. “Certainly the warm winter hurt every seasonal retailer, [while] the growth of brands’ own direct business have taken some share from their branded partners. But each of these retailers had their own set of special issues.”
According to Powell, the challenges facing Quiksilver and PacSun, which both play in the teen and surf lifestyle space, are quite different from those of sporting-goods sellers City Sports and Sports Authority.
Experts have said that Quiksilver largely fell victim to a slowdown of interest in surf-lifestyle wares, while City Sports and Sports Authority seemed to falter to increasing pressure from e-commerce players as well as brick-and-mortar competition.
“The underlying sports business remains quite solid,” Powell said. “Last year, we had the second best year in a decade in athletic footwear and athletic apparel remains robust, net of seasonal issues.”
Still, both Powell and B. Riley & Co. LLC analyst Jeff Van Sinderen agree that real estate is a huge factor for many of the firms seeking bankruptcy protection amid financial woes.
“A common thread is really debt and brick-and-mortar lease obligations,” Van Sinderen explained. “One of the main problems is that with brick-and-mortar traffic running negative, e-commerce growth [is] not enough to offset [that], and average sales volumes are too low to support rents that simply have not come down enough, if at all, in most cases.”
Van Sinderen added, “The numbers do not work. Restructuring/liquidating under bankruptcy is one of few feasible options for some companies.”
Shifts in consumer spending and a dearth of fresh trends in footwear and apparel have also fueled retail’s problems.
“Aside from broad macro factors — GDP growth, employment, wages and so on — secular elements such as the shift in consumer spending toward experiences as opposed to buying more ‘stuff’ is a major headwind,” Van Sinderen said. “One of the biggest issues for the [footwear-and-apparel] space has been a lack of compelling new product in a number of style genres — outside of athletic, active and casual-athletic derivative.”
For now, streamlining brick-and-mortar operations and creating better product are among the necessary steps for recovering brands and retailers, according to experts.
“I expect 2016 to be a year of retail rationalization,” Powell said.