If it seems like a new retailer is going bankrupt every other week, that’s because they are: So far in 2019, seven major retailers — that is, those with $50 million or more in liabilities — have filed for Chapter 11 protection, according to a new report from Coresight Research, a retail and technology advisory firm.
The biggest by far in terms of store count, Payless ShoeSource, is in the process of liquidating all 2,100 of its remaining U.S. stores (along with its Canadian business), boosting the total number of announced store closures to 5,480 in the first thirteen weeks of the year, compared with 5,727 in all of 2018 per data from Coresight Research. It’s also laying off all 16,000 of its employees. Meanwhile, Diesel USA, which filed for bankruptcy last month, hopes to try to turn around the brand through a three-year reorganization. Others include kids retailer Gymboree, mall mainstay Charlotte Russe and general merchandise chain Shopko.
But while the impact of these bankruptcies is varied, there are several reasons the phenomenon has become so common throughout the industry, as identified by Coresight.
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First, evidence suggests the U.S. is simply overstored. Experts have said the market simply can’t support the glut of retail outlets that opened in the decades leading up to the Great Recession, which led to a peak in the mid-’90s of about 1500 malls, a number that’s expected to decline to decline to between 750 and 900, according to various estimates. According to a 2016 Morningstar report, the U.S. has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada, 11.1 square feet in Australia and even less in the U.K. and Germany.
The rise of e-commerce has also shifted consumer dollars online, and in particular to Amazon, which brought in $141.92 billion in 2018 (a figure that excludes revenues from its services arms and marketplace commissions). Retailers that have failed to keep up with the times have suffered: Sears’ online sales declined 33 percent between 2013 and 2017, even as the rest of the sector was booming compared with physical retail. (The once-ubiquitous department store chain filed for bankruptcy in October.)
Shifting demographics in the U.S. have played a part, too: Data from Pew Research Center has shown that income gains in recent decades have been unevenly distributed toward the country’s most wealthy households, while the middle class gotten modestly smaller and lost spending power due to rising costs, hurting the retailers that once catered to this segment.
Finally, looking to retailers’ balance sheets, huge debt loads have increasingly begun to drag down once-thriving companies — a fate that’s hit Toys ‘R’ Us, Bon-Ton Stores and dozens of other retailers. In many cases, this debt is the result of leveraged buyouts by private equity firms, and the obligations have left companies unable to invest in e-commerce or store improvements to keep up with competitors.
Mall brand Charlotte Russe, for example, was acquired in 2009 by private equity firm Advent International for $380 million, saddling the retailer with a mountain of debt that it was unable to pay down. Early last year, it negotiated an agreement to reduced its liabilities by $124 million, but in February, it announced that it had filed for Chapter 11 protection, and in March, after failing to find a buyer that would keep the business afloat, it said it would shutter all of its remaining stores.
According to Coresight, more than 15 percent of retailers acquired by private equity firms since 2002 have filed for bankruptcy.
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