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Report Finds Troubling Trend in Retail Bankruptcies

Just three months into the calendar, 2023 has already seen more retail bankruptcies than all of last year.

Six retailers filed in January and February alone. Off-price home goods retailer Tuesday Morning, wholesale home decor supplier Nielsen & Bainbridge and pet store chain Independent Pet Partners Holding all filed last month. January brought bankruptcy filings by Party City, as well as RV and motorcycle dealership Performance Powersports and Forma Brands, which is in the business of beauty. Though Bed Bath & Beyond drove a flurry of bankruptcy-related headlines early in the year, it’s somehow managed to dodge a filing for the time being.

BDO Bi-Annual Bankruptcy report’s points to just five retail collapses for 2022 as a whole, including Revlon Inc.’s failure, BHCosmetics Holdings LLC’s filing, and office furniture retailer Cherry Man Industries Inc. submitting a petition. Sears Hometown Stores and Olympia Sports both liquidated during their bankruptcies later in the year.

“It is likely that 2023 will continue to see additional retail bankruptcies, particularly among non-essential segments, but the pace observed at the beginning of the year will slow down,” BDO said in a report published Monday.

Store closures in fashion and retail are already closing in on 2,000, and BDO sees more pain ahead of anyone selling things competing for wallet share with food and fuel. Coresight Research says retailers have opened about 5,100 stores this year, mostly in the value channel where shoppers are looking for inflation-friendly deals.

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January’s 3.4 percent unemployment rate is the lowest since 1969, and signs point to cooling inflation, though the 6.4 percent pace to start the year is higher than the Federal Reserve’s 2 to 3 percent target.

Consumers seem to have a little more faith in how things are going for them. The Conference Board’s Consumer Confidence Index in March climbed to 104.2 from 103.4 the prior month. But the Present Situation Index fell to 151.1 from 153.0 last month, while the Expectations Index rose nearly three points to 73.0. For 12 of the past 13 months, the Expectations component measuring consumers’ short-term outlook has been running below 80, which typically means a recession is on the horizon.

New data suggests retail sales will improve this year though perhaps not at last year’s pace. The National Retail Federation’s (NRF) annual forecast released Wednesday calls for 4 to 6 percent growth this year, or $5.12 trillion overall, versus last year’s 6 to 8 percent growth outlook. U.S. consumers are sitting on a “trillion dollars in excess savings,” NRF president and CEO Matthew Shay said during the trade group’s annual State of Retail and the Consumer media briefing.

Healthy savings aside, BDO points to continuing inflationary pressures tightening up household budgets and crimping discretionary spend. Total U.S. household debt hit a record $16.9 trillion during 2022’s fourth quarter, with credit card balances increasing by $61 billion to reach $986 billion, BDO noted, citing the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and credit.

“A sustained pull back in consumer spending could be a concern for retailers and the broader economy,” BDO said, adding that high inflation, lower savings and high personal debt were behind lower consumer spending at the end of last year.

As retailers grapple with right-sizing their inventory and a possible spending slowdown, BDO urged retailers to strike the right balance between amending customer return policies and risking losing sales.

Given all of the challenges in retail today, companies already in dire straits could wind up in bankruptcy this year.