BDO provides retail bankruptcy update

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BDO provides retail bankruptcy update

By Marianne Wilson - 10/03/2018
More of the retailers that filed for bankruptcy in the first half of 2018 did so seeking a reorganization with store closings than those that did so in 2017.

That’s according to BDO’s just-released biannual bankruptcy update, Retail in the Red, which offers data on retail bankruptcies and store closures for the first half of 2018. For the first six months of 2018, more than a dozen retailers with 20 or more stores filed for bankruptcy, including The Bon Ton Stores, The Walking Company, Claire’s Stores, Southeastern Grocers, and Tops Friending Markets. In July and August, at least six other retailers filed for bankruptcy, including Brookstone, National Stores, Heritage Home, Real Mex Restaurants, Gumps and Samuel Jewelers.

“While the economy has been expanding in 2018, the sizable number of brick-and-mortar store closings and retail bankruptcy filings reflect shifting consumer preferences, the continued growth of e-commerce and the United States’ over-built retail footprint,” the report said. “Consumers are spending a smaller share of their budgets on clothing and accessories than in the past, and younger generations continue to spend more on experiences than goods. These shifts in spending patterns continue to drive sales away from mall-based retailers that primarily sell clothing and accessories.”

BDO expects to see more store closings announced, as well as more Chapter 11 filings, especially by retailers that are “too highly leveraged to fund a transformation to new omnichannel strategy, or those that assume simply shutting doors will keep them afloat.”

“That said,” the report noted,” a retailer that is not Amazon must be realistic about its status quo before beginning any sort of transformation, taking steps to evaluate its financial strengths and weaknesses, and considering issues such as internal digital capabilities, supplier and distributor liabilities and core differentiators. Only at that stage can a retail business be optimized to prepare for calculated change and refining its business strategy to better align with customer needs.”

Overall, positive economic signs bode well for retailers for the remainder of year, according to BDO, but the consequences of trade tensions and shifting consumer preferences continue to loom. In addition, gas prices have been increasing and the Federal Reserve continues to gradually raise interest rates.

Click here to see the full report.

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