The 2023 year has been a tough one for the retail industry and after Bed Bath & Beyond, David’s Bridal, Tuesday Morning and Soft Surroundings can we expect more to follow?
Bankruptcies have always been a fact of life in the retail business but the post-pandemic combination of slower demand and higher interest rates have been a one-two punch that has knocked out some of the biggest names in the industry.
For many of these retailers, the bankruptcies have led to liquidations and their total exit from the retail scene, even if sometimes the name has lived on with new owners who often resurrect them online. Still, the post-Covid bankruptcies have eliminated literally thousands of physical stores and spooked suppliers who sold them and other retailers who competed against them wondering if there were more to come.
Bed Bath & Beyond was perhaps the largest of the 2023 retail failures, a victim of poor management choices, a failure to ramp up its e-commerce operation fast enough and eventually a balance sheet weighed down with too much debt. From an early 2010’s high of $11 billion in annual sales and some 1500 stores, it had dwindled down to barely a third of that at the end.
Tuesday Morning, Soft Surroundings and Christmas Tree Shops were other bankruptcy victims that were or are in the process of being liquidated. Again, some of these names will live on with third parties, usually only online. An earlier retail bankruptcy, Toys’R’Us is one of the few where its new owners are at least attempting to bring back physical stores, even if they bare little resemblance to their namesake originals.
David’s Bridal has fared better than most of this year’s bankruptcies with the 300-unit chain set to emerge intact with new owners from the private equity side, a fairly common outcome for many retailers. Chico’s, which was not in bankruptcy, became the latest apparel chain to go private via a private equity buyout, from Sycamore, which already owns a number of nameplates like Ann Taylor, Talbert’s and Lane Bryant, not to mention Belk department store.
So are more retail failures imminent? At this point, as the industry heads into the key holiday selling season, history suggests that whoever is teetering will hang on through Christmas and make any decision in early 2024 when it theoretically has as much cash on hand – and payables still outstanding – as possible. And with interest rates seemingly peaking, debt-loaded balance sheets that have made it this far are probably safe.
The one big wild card are the private equity companies that own so many retailers and have their own regimens on evaluating their businesses. If you are trying to anticipate any potential failures, that’s as good a place to start as any.
Perhaps the most optimistic thing that can be said is that as soft as retail sales have been so far in 2023 it’s remarkable that so few businesses have succumbed so far. That’s a good thought to hold on to.