Ask anyone running a store and they’ll tell you that it’s tough to be in the retail business. Merchants big and small are struggling to meet the demands of a customer base that is demanding better service, lower prices and products both in-store and from the comfort of their homes. A new report from investor research firm Moody’s certainly confirms that.
According to last week’s report, bankruptcies in the retail sector were at a record high during the first quarter of 2018.
There were nine defaults in the sector — including Sears and Claire’s — during the three months ended March 31. Tops Friendly Markets, a supermarket chain, and the Bon-Ton department store chain also filed for bankruptcy during the period. The only non-U.S. default that occurred in the first quarter was Britain-based BrightHouse Group, which sells rent-to-own refurbished sofas, televisions and refrigerators.
Defaults on corporate debt from the retail sector in the past three months made up almost one-third of defaults by corporations in all industries.
“Stresses in the retail sector have weighed on the operating earnings of department stores, discount stores and drug stores in particular,” a Moody’s spokesman said in the report. “A year ago, we noted that 14% of retail debt issuers were distressed and predicted that both the U.S. and European retail sectors would have the highest one-year default rates among all corporate sectors.”
The reasons are familiar. Consumer behavior is changing, mall traffic is down and competition from e-commerce continues to challenge brick-and-mortar store operators. Rising interest rates are also putting pressure on the more highly leveraged retailers and merchants.
There is good news in the Moody’s report. The research indicates that although defaults have increased, the global speculative default rate — which tracks expected corporate loan defaults across all industries — will decline over the next year.