Twenty-two percent of U.S. retail companies were deemed stressed or distressed at the end of the third quarter, according to research from Boston Consulting Group.
The financial and operational stability of U.S. retailers is continuing to improve from the height of the pandemic in 2020.
Twenty-two percent of U.S. retail companies were not stable — i.e. stressed or distressed — at the end of the third quarter of 2021, nearly the same (21%) as the previous quarter and less than the 28% at the end of the first quarter of 2021, according to research from Boston Consulting Group. The numbers are significantly less than at the height of the pandemic when, in the third quarter of 2020, 40% of retail companies were not stable. (BCG defines stressed companies as those that are underperforming industry peers or experiencing pressure from internal or external sources, while distressed companies are having trouble meeting financial obligations or experiencing severe operational challenges.)
The findings and results are based on the BCG TURN Radar index, which tracks the financial and operational performance of public companies using more than 20 forward- and backward-looking financial and stock market performance indicators and qualitative gauges. The index was developed by BCG TURN, BCG’s special transformation, turnaround, and restructuring unit.
Twenty-five percent of U.S. fashion and luxury companies were stressed at the end the most recent third quarter – a significant improvement from the 38% at the end of Q2 2021. These are great strides since the third quarter of 2020, BCG noted, when 70% of players were not stable.
“When it comes to fashion and luxury, the sector marked a strong rebound after suffering the dramatic impact of the pandemic,” said Francesco Leone, BCG partner and BCG TURN leader.
“The rebound, especially for luxury, occurred across geographies. However, most of the companies still in the stressed and distressed categories are retailers – confirming the difficulties of the channel. This is a spot where consumer behavior has probably been changed permanently. Business and operating models in this segment need to be rebuilt.”
The percentage of all U.S. public companies that are not operationally or financially stable is hovering around 18% as of the recent third quarter, which represents a significant rebound from last year’s third quarter, where about 32% of U.S. public companies deemed not stable, according to BCG.However, the recovery may be slowing a bit, as the percentage of not stable companies – i.e., companies that are stressed or distressed – isn’t much changed from the end of the second quarter of 2021, when it was 20%.
“While a few months ago we might have expected the rate of improvement to be more rapid, the Delta variant likely contributed to a somewhat slower rebound during Q3 2021,” said Luke Pototschnik, BCG senior partner and head of the firm’s transformation practice and BCG TURN in North America. “However, another key factor may the fact that some sectors have been forever changed by the pandemic.”
Travel/Tourism There are a number of industries in which financial or operational stress still defines a significant number of players. This includes travel and tourism, where 46% of companies were not stable at end of the third quarter. While this is much improved from the third quarter of 2020, when 64% were not stable, it’s still up from earlier this year when 31% were not stable at the end of the first quarter.
While the macro-economy overall is in good shape, companies in certain sectors will have to readjust and undertake a fundamental re-think, advised Pototschnik.
“In the sectors where many companies are stressed and distressed, consumer behavior changed dramatically due to the pandemic and will not go back,” he said. “New consumer behaviors are still forming – and they present a lot of opportunity. Companies will need to adapt and transform to leverage the changes to their advantage.”