Stress In The Retail Sector Appears As Bankruptcies Grow

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This month’s statistics from the American Bankruptcy Institute show a significant climb in commercial bankruptcy filings. 9,208 businesses are reported to have filed for bankruptcy protection in the first three months of 2016, up from 7,483 such filings 1Q 2015, making a year-over-year bump of 24%. The uptick follows a decline in filings lasting over five years.

From ABI:

“After 22 consecutive declines in total quarterly filings, the drop-off is tapering as more struggling businesses and households turn to the financial relief of bankruptcy,” said ABI Executive Director Samuel J. Gerdano. “Distress in the energy and retail sectors is represented in the increasing total of business filings, and we are also seeing a rise in individual chapter 11 filings.”

Recent Retail Rainouts

Facing challenges including internet retailing, overindebtedness, and decades of flat wages holding back consumer buying power, the retail sector has been buffeted by a wave of reorgs and closures sending instability into shopping center management and ownership nationally. Most recently, the 600-store activewear retail chain Pacific Sunwear filed for Chapter 11, planning to transfer significant equity to shareholders in a deal with its private equity investors.

PacSun’s troubles come on the heels of similar announcements this year by Sports Authority, Hancock Fabrics, Wet Seal, and the Vestis Retail Group, which includes Eastern Mountain Sports, Bob’s Stores, and Sport Chalet.

The unwinding of these operations is of concern to every professional working to add value in the retail property sector, from landlord to manager to tenants trying to avoid splash damage from nearby closings. Are these retail busts a speed bump in the wider commercial property markets, or are they something worse pointing to fundamentals in the economy? History, as always, will have the final word.

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