I’ve been doom-and-gloom on brick-and-mortar retail. But I haven’t been nearly doom-and-gloom enough, given the events of the past seven days. Includes my interview with The Financial Exchange, WRKO Boston.
Brick-and-mortar retailers, many of them subject to leveraged buyouts during the LBO boom before the Financial Crisis and now burdened with way too much debt, are keeling over one after the other, in a dense wave of debt restructurings and bankruptcies. And creditors are getting skinned.
The crash of brick-and-mortar retail is due to structural causes – including the shift to online retail. These issues will not go away. They will only get worse. Even profitable retailers, like Macy’s, are shuttering stores. They’re all doing it, profitable or in bankruptcy. This is starting to impact the loans these malls are carrying and that have been packaged into commercial mortgage backed securities.
For example, on March 6, Fitch Ratings warned that JC Penney’s plan to close 140 stores over the coming months “will weigh” on the CMBS that are exposed to these malls, particularly since many of these malls face multiple store closings, not just by Penney’s but others as well, including anchor stores, such as Macy’s or Sears:
An initial look into Fitch’s rated portfolio, where JC Penney was listed as a top five tenant, found 136 properties within 122 CMBS transactions. The current outstanding balance of these identified loans with JC Penney exposure is approximately $11.4 billion. The majority, 130 properties, are securitized in CMBS multi-borrower transactions and six in single-borrower transactions.
The potential closure of these stores will have a direct effect on the respective loans regardless of whether the store itself is collateral for the loan. This is due to declining rental income, reduced foot traffic, and/or potential co-tenancy lease clauses affecting the overall property. Added pressure will occur if the malls already have a closed anchor, such as Macy’s or Sears, without re-leasing prospects.
So here I am on The Financial Exchange, at WRKO Boston, talking with host Barry Armstrong about the bonds and leveraged loans of brick-and-mortar retailers, including those of Neiman Marcus. Its junk bonds plunged to just over 50 cents on the dollar and its loan to 77 cents on the dollar when news emerged that it too had hired a restructuring adviser. And we’re discussing why the stress malls are in is likely to scuttle the buyout of Macy’s (the handsome dude is host Barry Armstrong):
I’ve been documenting the brick-and-mortar retail fiasco for almost two years (the articles are here). But even I, though I’ve been doom-and-gloom on the sector, have not been nearly doom-and-gloom enough, given what has taken place over the last seven days.
Below are nine chain-store retailers that have filed or are considering filing for bankruptcy, or restructuring their debts, so far in 2017, six of them in the last seven days! These are just the largest ones. And the year is barely into its third month:
March 6 – HHGregg, appliance and electronics retailer, filed for bankruptcy. On March 2, it announced that it would close 88 of its 220 stores, shutter three distribution centers, and shed 1,500 jobs.
March 6 – Gordmans department stores: “People familiar with the matter” told Bloomberg that Omaha-based Gordmans, with 99 stores in 22 states, is preparing to file for bankruptcy as early as this month.
March 3 – Neiman Marcus: sources told Reuters that the luxury retailer has hired investment bank Lazard to help restructuring nearly $5 billion in debt – though they claimed it is in no immediate risk of bankruptcy.
March 3 – Radio Shack “is preparing to file for bankruptcy” again, sources told Bloomberg, after having already filed in February 2015. It is now down to 1,500 stores and will likely close more.
March 1 – Payless Shoes, largest family footwear retailer in the US: Footwear News reported that “multiple new sources contacted FN alleging that their respective firms have not been paid since August for footwear and other products shipped to Payless, and that they have been forced to lay off several staff members as a result.” Payless has been meeting with its lenders to discuss restructuring its debt and closing approximately 1,000 stores.
March 1, 2017 – BCBG, California-based fashion retailer, once with more than 570 boutiques globally, including 175 in the US, filed for bankruptcy. The filing showed that it started closing 120 of its stores in January.
February 6, 2017 – Eastern Outfitters, parent of discount chain Bob’s Stores and outdoor retailer Eastern Mountain Sports, filed for bankruptcy.
January 17, 2017 – Limited stores filed for bankruptcy.
January 16, 2017 – American Apparel, clothing manufacturer (manufacturing clothes in the US!) with 110 retail stores filed for bankruptcy the second time. Stores and manufacturing sites are being closed.
Friday has been a very busy day in Brick-and-Mortar Fiasco Land. Read… The Bloodletting among Retailers Simply Doesn’t Let Up