In another sign that the traditional retail industry is falling apart, research firm Moody’s reported that retailer defaults reached an all-time high in the first quarter of 2018.
The news is also a sign that many retailers became overleveraged as they tried to expand, only to hit a sea change in the foot traffic to their locations and low traffic to their e-commerce sites as well.
Moody’s analysts wrote:
The corporate sector saw nine retail defaults in the first quarter, reflecting the fallout of changing consumer behavior and advancing e-commerce for traditional brick-and-mortar retail. In total, the corporate sector saw 28 defaults in the first quarter, compared with 23 in the same period a year ago. After retail, oil & gas was the biggest contributor with five defaults.
The latest retail defaults included Sears Holdings Corp., which completed a distressed exchange to push out debt maturities and reduce its interest burden. Claire’s Stores Inc. filed for Chapter 11 after struggling with persistent weak performance because of declining mall traffic and an increasingly competitive retail landscape.
Last year, according to the agency, it forecast that 14% of retailers who had issued debt found that debt had become “distressed.” It also predicted historically high defaults in 2018.
While the report did not mention Amazon.com Inc. (NASDAQ: AMZN), the massive online retail operation continues to be the primary enemy of the brick-and-mortar retail sector. Amazon has faced a backlash recently as the president and state and local officials complain that it does not pay its share of taxes in many places. At the same time, the argument goes, brick-and-mortar retailers do, which puts them at another financial disadvantage.
Another reality that the Moody’s research points to is that retail layoffs are likely to continue, if not accelerate. The liquidation of a retailer the size of the Sears and Kmart divisions of Sears Holdings Corp. (NASDAQ: SHLD) would cost many tens of thousands of jobs. Smaller workforce cuts and store closings will be part of the retail industry for years to come as retailers attempt to cut costs to improve margins. The retreats may not work as some retailers create smaller and smaller footprints, and thus less market share.
The Moody’s evaluation is not just a look backward at defaults. It is also a warning.
The #1 Thing to Do Before You Claim Social Security (Sponsor)
Choosing the right (or wrong) time to claim Social Security can dramatically change your retirement. So, before making one of the biggest decisions of your financial life, it’s a smart idea to get an extra set of eyes on your complete financial situation.
A financial advisor can help you decide the right Social Security option for you and your family. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Click here to match with up to 3 financial pros who would be excited to help you optimize your Social Security outcomes.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.