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More Retail Bankruptcy Filings Could be on the Way in 2019

Stock market stability and energy prices have the strongest potential to disrupt the U.S. economy, and with it, potentially increase the rate of retail bankruptcy filings this year.

David Berliner, restructuring and turnaround services partner at BDO, expects some companies to file that aren’t even on anyone’s radar yet. Some retailers, he said, have a “good amount of debt” on their balance sheets, and what they need to do now is take advantage of any options to refinance before a recession hits.

“When the recession comes, it will be a lot harder for them to restructure their debt and reorganize. If they refinance now, it will give them a cushion to withstand the downturn,” he said.

In a recent report BDO issued on, “Retail in the Red: BDO Bi-Annual Bankruptcy Update,” Berliner said how the rest of 2019 shakes out could mean a tipping toward either profitability or distress for those retailers that are treading water.

BDO tracked nine retailers that filed at the end of 2018 and found that a few, like Sears Holdings and Mattress Firm, were large, long-standing industry players. Others included National Stores, Samuel Jewelers, David’s Bridal and Gumps. “These filing occurred amid a strong U.S. economy with healthy consumer spending, low unemployment levels and controlled inflation rates,” the report noted. Sears and David’s Bridal exited bankruptcy proceedings, while Mattress Firm is pending, and others, like Samuel Jewelers and Gumps, have either liquidated or are in the process of doing so.

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According to Berliner, there are also two key factors that will make 2019 more challenging for many retailers.

“Retail sales, due to tax refunds, could become a lot lower due to less money in people’s pockets. The concern about the economy could also have some tightening up their purses even without a tax refund,” he said in a telephone interview. He’s also concerned about labor costs due to the changing minimum wage laws in many states. “Those that are in the middle of the seesaw could go either way. The trade fight if settled favorably in the next month or two could be a boost. But if it’s not settled and there are more tariffs imposed, that cost could hit the consumer more, and that would hurt retailers as well.”

In addition to the new companies that may file, there’s also a concern that there could be a Chapter 22 in the mix. Chapter 22 is essentially bankruptcy slang for those retailers that have filed a Chapter 11 petition for bankruptcy court protection, exit with a restructuring plan, and then end up back in bankruptcy court for their second tour of duty.

According to Berliner, “e-commerce sales continue to [rise], comps for brick-and-mortar are not going up. There is a dichotomy between good brick-and-mortar stores and those that are weak.” The problem, he added, is that the struggling retailers—and even some of those that seem to be holding their own—typically don’t have the financial resources to either service their debt or revamp operations to give consumers what they want.

“We expect to see a steady pace of store closure announcements over the next few months, as well as more retailers [filing] for bankruptcy,” Berliner said. “It’s hard to play ball with one hand tied behind your back and that’s what many retailers are forced to do.”