Fitch: Pandemic did not drive all retail bankruptcies in 2020

The COVID-19 pandemic was not the main factor behind all retail bankruptcies last year.

Some 2020 retail bankruptcies were strategic as opposed to being pandemic-driven, according to a new Fitch Ratings report. Business disruptions and liquidity pressures arising from the pandemic were a material driver behind many of the bankruptcies, the report noted. But some of the bankruptcies were partially strategic, allowing companies to equitize debt claims and rationalize real estate portfolios through lease rejection, according to Fitch Ratings.

"In these cases, capital structures were untenable and a default may have occurred over the medium term," said Judah Gross, director. "Examples of this trend include Tailored Brands and Ascena."

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

Nearly half of retail and supermarket bankruptcies were resolved as liquidations, compared with 11% for cross-sector corporates. 

The full report "Retail Bankruptcy Enterprise Values and Creditor Recoveries" is available at Fitchratings.com.