As U.S. equity markets continue their march back toward all-time highs, courtesy of the latest BTFD binge trade, at least one 'small' segment of the U.S. economy does not seem to be participating in the rally as 9 brick-and-mortar retailers have already filed for bankruptcy protection in 1Q 2017 alone. That volume of filings matches the total number of retail bankruptcies for all of 2016 and puts the industry on pace to exceed even the 'great recession' highs. Per CNBC:
Nine retailers have filed in just the first three months of 2017, according to data provided exclusively to CNBC from AlixPartners consulting firm. That equals the number for all of 2016. It also puts the industry on pace for the highest number of such filings since 2009, when 18 retailers resorted to that action.The rising number of retail bankruptcies comes as consumers are making more purchases online, and shifting their spending toward travel and other experiences. Meanwhile, the supply of physical stores continues to outweigh shopper demand, putting pressure on the industry's profits."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.
Many of the early retail victims include companies that were snapped up by Private Equity interests during the last down cycle and aggressively levered. In addition to the following nine retailers that have already liquidated or are working to reorganize, Payless Shoes and Bebe are also expected to file at some point in the not so distant future.
- Gordmans Stores
- Gander Mountain
- General Wireless Operations (formerly RadioShack)
- HHGregg
- BCBG Max Azria
- Michigan Sporting Goods Distributors
- Eastern Outfitters
- Wet Seal
- Limited Stores
Of course, as Deb Rieger-Paganis, a managing director in the turnaround and restructuring practice at AlixPartners, points out, retail bankruptcies and/or store closures, especially from anchor tenants, can push the whole retail space into a downward spiral as "people don't like to shop where there's a lot of vacant space." So while larger retailers like Macy's, J.C. Penney, Sears and Kmart have avoided chapter 11 so far in this cycle, they're all in the process of closing hundreds of stores and those vacancies are likely to have ripple effects through the industry.
Meanwhile, as we pointed out last month (see "America's Desperate Mall Owners Turn To Grocers, Doctors & High Schools To Fill Empty Space"), America's mall owners are having such a hard time filling empty retail space that they're turning to high schools, doctors offices and grocery stores.
Once a shining beacon of American capitalism, malls around the U.S. are failing at an alarming rate due to a combination of shifting consumption patterns, years of underinvestment by mall owners and a spate of retailer bankruptcies over the past 12 months that have left large swaths of once prime real estate empty (see "Number Of Distressed US Retailers Highest Since The Great Recession").
Now, as the vacant square footage grows larger, mall owners are being increasingly forced to turn to non-conventional tenants to fill empty space. Per the Wall Street Journal, the latest target of mall owners is yet another struggling industry, grocers, with everyone from Whole Foods to Kroger looking to snap up square footage at discount prices.
Natick Mall in Natick, Mass., is leasing 194,000 square feet of space vacated by J.C. Penney Co. to upscale grocer Wegmans Food Markets Inc., which is planning to open a store in 2018.
College Mall in Bloomington, Ind., plans to bring in 365 by Whole Foods Market in the fall.
Grocery giant Kroger Co., meanwhile, has purchased a former Macy’s Inc. location at Kingsdale Shopping Center in Upper Arlington, Ohio, and plans to build a new store in its place.
But we're sure it will all work out just fine and wall street will go on buying those mall reits with reckless abandon...you know, because dividend yields.
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