Mount as List
BY DANIEL A. LOWENTHAL, PARTNER,
PATTERSON BELKNAP WEBB & TYLER LLP
The state of brick-and-mortar etail in the United States is dismal. Companies are firing
workers, closing stores, and filing for
bankruptcy. In-store customer traffic
is down, while online purchases are
up. For big retail chains, the situation
will worsen before it improves.
Many retailers have too much debt
as a result of leveraged buyouts and
other deals that can create liquidity
problems. According to Moody’s, 19
retail chains are rated at the distressed
Caa or CA levels, with debt totaling
more than $4 billion. Before 2019, 30 to
40 percent of that will come due and
defaults will rise. The situation hasn’t
been this bad for retailers since the start
of the Great Recession of 2008-09.
The list of troubled retail companies is
long. Since 2013, Abercrombie & Fitch
has closed 20 percent of its stores and
plans to shut 60 more. Macy’s and Sears
plan to close 218 stores before July. In
March, Sears, and its companion store
Kmart, announced that “substantial
doubt exists related to the company’s
ability to continue as a going concern.”
The company has lost money for
seven straight years. Its suppliers are
cutting inventory and imposing shorter
payment terms. The company also
faces huge upcoming debt payments,
with $596 million coming due this
year and $1.29 billion in 2018.
JCPenney plans to close 140 stores.
American Apparel and The Limited will
shut multiple locations as well. BCBG
Max Azria Group filed for bankruptcy
in March and will close 120 stores.
Payless filed for Chapter 11 protection
in April and announced that it would
close 400 stores in the U.S. and Puerto
Rico immediately. Bebe Stores Inc.
announced that it will shut its 170