2021 saw lower bankruptcies, better performance for retailers

The retail industry had a lot to cheer about in 2021.

Retailers experienced a relative decrease in bankruptcy filings last year as operating performance generally exceeded pre-pandemic levels, according to a new Fitch Ratings report: Retail Bankruptcy Enterprise Values and Creditor Recoveries.

In 2020, a large volume of bankruptcy filers early on in the pandemic accounted for many of the weaker retail names. Several of these companies likely could have avoided defaults over the medium term, according to Fitch, but they filed for strategic reasons, including equitizing debt claims and rationalizing real estate portfolios through lease rejection. These 2020 bankruptcy filers pulled forward bankruptcies that otherwise may have occurred in 2021.

Nearly half of retail and supermarket bankruptcies were resolved as liquidations, compared with 11% for the cross-sector corporate universe. Excluding supermarkets, 44% of retail cases were resolved via liquidation.

“Over the longer term, shifts in consumer spending to services and experiences, apparel brand life cycles, insufficient operational investments and increased penetration by discounter and online competitors drove reduced access to trade and lender credit, causing recent retail sector bankruptcy filings,” said Judah Gross, senior director, Fitch.

“High fixed costs, including lease and interest payments, pressured cash flows and liquidity.”