By Aisha Al-Muslim
The pace of retail bankruptcies and store closures in the U.S. has accelerated so far this year compared with 2018, due in part to last year's lackluster holiday shopping season, a new report finds.
More retail bankruptcy filings are expected in the second half of the year, and bricks-and-mortar stores will continue to close at a higher rate, according to a report released Wednesday by professional services firm BDO USA LLP.
"We're going to see this trend continue," said David Berliner, who leads the business restructuring and turnaround services practice of BDO, which provides assurance, tax and advisory services. While retailers are expected to keep falling in the second half of the year, the torrid pace should slow, Mr. Berliner said.
"I don't think the pace of the bankruptcy filings will be as large as it was in the first half," he said.
Talk of a retail apocalypse has echoed throughout the industry for years as shoppers abandon the nation's malls and flock to online sellers. But the expected increase in bankruptcies and closures means the industry's recent pain shows little sign of easing.
Retailers continue to grapple with excessive debt, over expansion, private equity-ownership pressures and changing consumer behavior. On top of that, retailers were hurt by the 2018 holiday season, which failed to meet expectations, resulting in the weakest retail sales performance since December 2009, BDO found.
Retail sales in the first half of the year were also hit by smaller tax refunds for the average taxpayer, trade tariffs, the longest government shutdown in U.S. history and inclement weather, which led some retailers to offer deep discounts to move merchandise, according to BDO.
In the first half of 2019, 14 retailers with 25 or more stores filed for bankruptcy, including Payless ShoeSource Inc., Gymboree Group Inc. and Charlotte Russe Holdings Corp., BDO found. That is up slightly from 13 retailers with 20 or more stores during the same period in 2018.
Over the summer, several more retailers -- including Charming Charlie Holdings Inc., Barneys New York Inc., A'Gaci LLC and Avenue Stores LLC -- filed for bankruptcy.
The number of store closures from January to June has already exceeded the number of bricks-and-mortar stores closed in all of 2018. About 19 retailers announced they would close a total of more than 7,000 stores so far this year, already topping all previous full years, BDO found.
Many of those closures were due to companies filing for bankruptcy, including ShopKo, Charming Charlie and Things Remembered. The bankruptcies of Payless, Gymboree and Charlotte Russe alone led to the closure of about 3,700 stores, according to BDO.
To reduce the expense of maintaining a physical presence, some retailers are dropping their flagship stores and opting for smaller locations in prime urban areas.
For the full year, Coresight Research predicts more than 12,000 stores will close, compared with a total of under 6,000 in 2018. Behind the closures are some retailers going out of business, while others are just reducing their physical footprint.
But it isn't all bad news. Despite the large number of bankruptcy filings and store closures, overall retail sales in the first six months of the year remained solid because of a strong economy, low unemployment and rising wages, BDO said.
The risk of a significant downturn in the retail sector is slim for the remainder of the year, but retailers should still remain cautious heading into 2020 because of the trade dispute with China and record consumer debt, the report said.
"If the economy does stumble a little bit, things can get painful," Mr. Berliner said. "That can have a devastating effect on the weak retailers who can't afford that sales dip in the holiday season."
Write to Aisha Al-Muslim at [email protected]