While Fitch Ratings expects continued debt restructurings and potential bankruptcies for challenged retailers in 2018, it also said those who filed for bankruptcy this year leaned more toward a liquidation of operations.
In a report titled Fitch 2018 Outlook: U.S. Retail and Restaurants, sector leverage is expect to continue to rise, mostly due to earnings before interest, taxes, depreciation and amortization declines for operators from sales declines and investments in omnichannel models.
David Silverman, senior director, said, “Fitch expects changing shopping habits to continue to drive corporate strategy around price positioning, omnichannel investments and real estate portfolio analysis. The gulf between market share gainers and donors is expected to widen.”
Fitch said ideas to watch out for in 2018 include strategic initiatives by Amazon.com, and retail real estate rationalization, particularly at regional malls. Continued debt restructurings and potential bankruptcies for challenged retailers are also situations to keep tabs on.
A separate Fitch case study on retail bankruptcies in 2017 noted that nearly half of the bankruptcies filed this year — 18 of 39 — ended as liquidations. Of the balance, 13 were reorganized as independent chains and eight were sold as going concerns to new owners.
According to the study, Fitch expected additional sector defaults due to substantial pressure facing the retail sector. In the summer, the ratings agency disclosed its Primary Bonds and Loans of Concern lists, which included a number of retailers.
NYDJ and Charming Charlie were also on the watch list of Moody’s Investors Service, a competing ratings agency. Moody’s in February also cited accessories retailer Claire’s Stores Inc. as having weak liquidity.
Of the five retailers called out for their debt levels, Nine West shuttered its remaining full-price store at Rockefeller Center in May. Charming Charlie — the chain best known for its concept of merchandising its offerings by color — is in the process of closing its New York flagship on 39th Street and Fifth Avenue. A store associate said the Charming Charlie store would close by the end of this month. She also said the chain is closing a number of other stores. Fixtures such as three-drawer chests are being sold for $100 each, and signage about other fixtures up for sale state that Hilco Trading is handling the sale of inventory.
Reports in the past week have suggested that a bankruptcy filing for Charming Charlie might be on the horizon if talks with lenders about its debt restructuring can’t be agreed upon. Executives at Charming Charlie did not return a request for comment.