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The Amount Of Retail Bankruptcies This Year Is Reaching A Scary Number

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The Amount Of Retail Bankruptcies This Year Is Reaching A Scary Number

2017 is only one quarter old, but nine retailers have already filed for Chapter 11 bankruptcy protection. Throughout all of 2016, a total of nine retailers went bankrupt.

CNBC, citing data it exclusively obtained from AlixPartners, noted the pace of retailer bankruptcies puts the sector on pace to handily surpass the 18 retailers that went bankrupt in 2009 at the peak of the financial crisis.

CNBC's report pointed out that consumers aren't cutting back on spending, rather they chose to do so online. Needless to say, this created a scenario in which the total number of physical stores exceeds total shopper demand.

Pain To Continue For Retailers

The CNBC report noted that the number of companies listed on Moody's distressed list stands at the highest level ever since the financial crisis.

"It's just kind of this perfect storm where things are coming together, and it's going to continue for awhile," Deb Rieger-Paganis, a managing director in the turnaround and restructuring practice at AlixPartners, told CNBC.

But there is another odd trend emerging.

More than half of retailers who've declared bankruptcy in 2017 are actually companies that were previously acquired by a private equity firm. This marks a notable increase from five years ago when just 31 percent of bankrupt retailers were owned by a private equity player.

There might be a reason for this.

Private equity groups tend to look for a retail chain they believe is either undervalued or can be greatly improved through cost and operational efficiencies. However, firms underestimated how much money they had to invest in the store fleet or digital operations.

See Also:

Retail's Latest Casualty: Payless

RadioShack To Kodak; These Companies Fell From Grace The Hardest

 

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