Bankruptcies Could Hit Retail Industry As Prices Increase And Consumers Reduce Spending

Bankruptcies Could Hit Retail Industry As Prices Increase And Consumers Reduce Spending

The retail industry is facing a potential tidal wave of bankruptcies later this year as rising prices begin to dent consumer demand and stores begin to contend with bloated inventories.

CNBC reports the potential for an economic recession is also still looming. The first domino may have already fallen as beauty giant Revlon filed for Chapter 11 bankruptcy protection last week. Now consumers and shareholders alike are wondering who’s next.

“Retail is in flux,” Perry Mandarino, co-head of investment banking and head of corporate restructuring at B. Riley Securities, told CNBC. “And within the next five years, the landscape will be much different than it is today.”

The retail industry saw a dramatic pullback in restructurings last year and early this year as federal stimulus funds provided cash infusions to companies and consumers. The pause came after the beginning of the pandemic saw several large companies—including JCPenney, Brooks Brothers, J. Crew and Neiman Marcus—file for bankruptcy.

The Revlon bankruptcy brought the number of retail bankruptcies this year to four, the lowest number of retail bankruptcies in more than a decade. However, if inflation continues to rise and the country hits a recession that number could top the 52 retail bankruptcies during the first year of the pandemic.

“What you saw in 2020 was a tremendous amount of restructuring activity getting pulled forward,” Spencer Ware, managing director and retail practice leader at Riveron, said. “Then we got from 2020 through today with a tremendous amount of stimulus. What’s going to happen now? It’s a bit of a mixed bag.”

An analysis by Fitch Ratings shows the consumer and retail companies in the most danger of bankruptcy include mattress maker Serta Simmons, cosmetics line Anastasia Beverly Hills, and clothing chain Men’s Warehouse.

The latest retail sales data show consumers have pulled back spending on retail and food service by 0.3% in May versus April. Furniture and home furnishings, electronics and appliance retailers, and health and personal care retailers all saw declines during the same period.