18 retailers at risk of bankruptcy as consumers tighten wallets in 2022 - The Entrepreneurial Way with A.I.


Monday, October 3, 2022

18 retailers at risk of bankruptcy as consumers tighten wallets in 2022


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Last year was a great one for many if not most in and connected to the retail industry, except for its restructuring experts. (But don’t worry about them — the bankruptcy lawyers and consultants had a sensational 2020.)

Revlon and Olympia Sports aside, bankruptcies remain slow after years of “apocalypse” and the surge in the pandemic’s first year. The travails of 2020 pulled forward many bankruptcies that might have happened this year or next. Those reorganized were (theoretically) left with cleaner balance sheets, trimmed store footprints and stronger financial positions.

Yet retail is a big industry with many players, not all of them on solid footing. Consumers are still capricious. The digital transformation is ongoing and expensive to adapt to. Supply chains are complicated and difficult to master, or even fully understand. COVID-19 is still with us. Demand is as difficult to predict today as it ever was.

With stimulus payments gone, consumers under pressure from inflation, capital markets tighter and business inputs still expensive, the financially or operationally weaker players who rode a wave of high demand and a quiet promotional environment are at risk once again

In a summer report on vulnerable retailers, Creditntell cited high inflation, falling demand and “bloated” inventory levels as pressures on margins and profits. 

“Potentially the biggest stumbling block will be the consumer,” Albert Furst, chief operating officer of Creditntell, said in an interview.   

One proprietary measure of bankruptcy risk in the market comes from CreditRiskMonitor’s FRISK scores, which specifically measure the probability of a company filing for bankruptcy within 12 months. The scores factor in various data, including trading volatility, financial metrics and analytics from the firm’s own platform that is often used by company credit managers.

This time last year the retail companies that carried the very lowest FRISK scores, indicating the highest risk of bankruptcy, numbered just three.

As of Sept. 30 this year, the number had surged to 18, a cohort size much more in line with pre-pandemic risk levels. Of that, nine retailers had a FRISK score of 1, indicating a 9.99% to 50% chance of filing for bankruptcy within the next 12 months.

Retailers with a 9.99%-50% chance of bankruptcy
Name Sector
Bed Bath & Beyond home
Digital Brands Group apparel
Express apparel
iMedia brands television retail
Kirkland's home
Party City specialty
The RealReal apparel
Rite Aid drugstores
Tuesday Morning off-price
Wayfair home

Source: CreditRiskMonitor's FRISK scores as of Sept. 30

Another nine had a FRISK score of 2, representing a 4% to 9.99% chance of bankruptcy by CreditRiskMonitor’s calculations.

Retailers with a 4%-9.99% chance of bankruptcy
Name Sector
Abercrombie & Fitch apparel
Big Lots home
Farfetch apparel
Land's End apparel
Steinhoff (owner of Mattress Firm) home
Stitch Fix apparel
ThredUp apparel
Torrid apparel

Source: CreditRiskMonitor's FRISK scores as of Sept. 30

Among those companies with the lowest scores are digitally savvy operators that held initial public offerings in recent years, including The RealReal, Stitch Fix, ThredUp and Digital Brands Group. That perhaps should not come as a surprise, given the slump in apparel amid inflation on food and gas as well as the high expenses of e-commerce and the losses many digital darlings racked up before (and after) going public.  

FRISK scores only cover those companies with publicly traded stocks or bonds. Credit ratings and other measures of default risk turn up other names as well.

Those with the lowest ratings from Creditntell include, as of July, Tuesday Morning, Party City, GameStop, Rite Aid, Bed Bath & Beyond, Casper and Joann.

Creditntell's top retailers at risk
Name Sector
Tuesday Morning home
Party City Specialty
GameStop electronics
Rite Aid drugstores
Bed Bath & Beyond home goods
Casper home
Joann craft/specialty

Source: Creditntell

Meanwhile, Fitch Ratings’ most recent lists of loans of concern include a handful of retailers, including Belk, Men’s Wearhouse, Boardriders and Premier Brands Group (a reorganized incarnation of the old Nine West Holdings).

Here’s a closer look at some of those most at risk:

Bed Bath & Beyond

Daphne Howland/Retail Dive


Bed Bath & Beyond has been on a roller coaster since the pandemic began. When consumers first turned to the homes they were stuck in during the days of social distancing, the retailer’s sales boomed and a long-sought turnaround appeared to be taking hold.

But supply chain issues last year and then a drop in discretionary spending in 2022 sent sales and profits spiraling. Mark Tritton, who came from Target to lead Bed Bath & Beyond as CEO starting in 2019, left the company after an abysmal quarterly earnings report this summer.

Reports from the Wall Street Journal detailed the failed efforts of Tritton to juice up Bed Bath & Beyond’s private label offering. Analysts have pointed to strategic flaws and a botched execution of Tritton’s turnaround plan as well as underlying weakness that preceded Tritton.

“I think [Tritton] did way too much way too soon,” Furst said. “And he did it during the supply chain challenges.”

Now there is a leadership vacuum on top of macroeconomic and operational challenges, with Tritton gone, a permanent CEO yet to be selected, the death by suicide of Chief Financial Officer Gustavo Arnal, and the elimination of the operating chief and store chief roles.

As it tries once again to turn itself around, Bed Bath & Beyond has new debt financing as well as a plan to close over 150 stores and lay off staff to cut expenses.

“They’ve got a lot to rectify really fast,” Furst said.

Tuesday Morning


One of the first innovators of the off-price model, Tuesday Morning went into bankruptcy in 2020, after years of losses and middling sales as it tried to compete with the off-price giants. Its Chapter 11 also followed a sharp drop in its revenue in the early months of COVID-19.

The company shed stores and gained new debt financing in bankruptcy and exited last year. But amid global economic headwinds, Tuesday Morning in May revised down its sales expectations and projected an adjusted EBITDA loss of up to $29 million for its current fiscal year. S&P Global Market Intelligence has listed it among the most vulnerable retail companies.

In the company’s most recent period, it reported comp sales growth of 8% while its gross margin rate compressed by more than seven percentage points and its operating loss increased by more than $10 million from last year.

In September, Tuesday Morning struck a deal with Retail Ecommerce Ventures — owner of the Pier 1, Radioshack, Stein Mart and other retail brands — that provides $32 million in new debt, some of which can be converted to equity, and which will pay down some of its existing debt and fund a move into e-commerce and omnichannel retail.

As part of the agreement with REV, Tuesday Morning will get access to the latter’s digital platform and the rights to sell products from the Pier 1 brand, which REV acquired in 2020.

The investment could be a hopeful sign, at least for the near term. “I assume with that investment, there’s no plan to file within months, if you’re going to drop money into it,” Furst said. “Different companies have different issues. They were never a balance sheet problem. They were always an operational problem.”

Furst also noted that Tuesday Morning’s lot didn’t improve much after trimming its store base in bankruptcy or during the surge in home goods sales during the pandemic. As for the introduction of Pier 1 products via REV: “What was the demand for Pier 1 before? Will a store within a store help that much?” Furst said.

Party City

Daphne Howland/Retail Dive


Party City went into the pandemic with financial and competitive concerns. A one-time leveraged buyout, it still carries a heavy debt load. Digital players and generalists have been eating into its brick-and-mortar Halloween City business since 2019. A foray into toys, after Toys R Us liquidated, didn’t take.

And then the pandemic happened. The company’s core business revolves around parties and social celebrations. The health risks of just being around people led to a cratering in the company’s sales.

While parties and sales emerged from their pandemic lows, to an extent, Party City has also grappled with helium shortages, inflated operating costs and other challenges. In the second quarter, the company’s retail sales fell 4.6% while gross profit margin shrunk by 680 basis points.

Compounding challenges such as freight and helium costs have been “a sales slowdown attributed to consumers traveling more and taking celebrations on the road, as well as lapping government stimulus and the reopening of the country last year,” Telsey Advisory Group analysts said in an August note. Against the tough environment, the company had lowered its guidance for the year.

The RealReal

Cara Salpini/Retail Dive


The RealReal is part of a cohort of e-commerce specialists to go public in recent years despite a history of loss-making. The company’s revenue grew more than 40% between 2018 and 2020, but the luxury resale marketplace struggled during the pandemic and the apparel slump that came with it. The company also weathered reputational issues when its authentication process faced scrutiny.

This year, founder Julie Wainwright stepped down abruptly from the CEO role after 11 years as the company turns more attention to profitability.

Unlike others in the digital space, The RealReal has been adding staff after labor shortfalls led to trouble acquiring inventory. In its most recent reporting period, the company’s revenue increased by 47%, yet average order value was down as customers traded down to less expensive items in the face of inflation.

Executives told analysts that they expected a surge in apparel demand late in the pandemic to subside eventually, but that it happened faster than anticipated.



Wayfair has become a force in the home goods realm. Few can rival it in e-commerce home goods sales. Yet for most of its life, the company has lost money.

The year 2020 was an exception. Wayfair brought in more than $360 million in operating profit. Prior to that, the company posted a net loss for every year it has ever reported publicly, going back to 2011. And even the profits it made in 2020, when home goods sales and e-commerce were booming, came with a razor-thin operating margin.

Last year, Wayfair was back in the red. By July of this year, the company was the only e-commerce retailer to lose revenue among the top in the sector, according to GlobalData.

“There is a fundamental weakness in Wayfair’s business model: It needs considerably larger volumes and many more regular customers to attain profitability,” GlobalData Managing Director Neil Saunders said at the time. “Now [that] demand is normalizing, Wayfair is back to making eye-watering losses.”

In August, the company announced a 10% cut to its corporate staff as e-commerce continued its slowdown and Wayfair looked to rein in costs. The company said then that it was also working to make “substantial reductions” to third-party labor costs.

“We were seeing the tailwinds of the pandemic accelerate the adoption of ecommerce shopping, and I personally pushed hard to hire a strong team to support that growth,” Wayfair CEO Niraj Shah wrote in a note to employees at the time of the announced layoffs. “This year, that growth has not materialized as we had anticipated. Our team is too large for the environment we are now in, and unfortunately we need to adjust.”

For all its challenges and history of losses, Wayfair’s market cap remained near $4 billion at the end of September, a sign that the market still has confidence in Wayfair’s potential for profitability.

Digital Brands 

Courtesy of Digital Brands Group


Less than a year after going public, Digital Brands Group dropped language into its Securities and Exchange filings that it may have to file for bankruptcy without additional capital.

While the company has raised new funds since then, it has amassed extensive losses. Digital Brands is built around its acquisition philosophy, by which it aims to become an expansive style shop for consumers and potentially move into new categories as well. But acquisitions are expensive, and the company has yet to show it can make its model profitable.

Moreover, Digital Brands has also been sued by creditors over late payments. This spring, one of those creditors demanded that Digital Brands put its expansion plans on hold until it was paid for goods shipped years ago, in 2019 and 2020.

Digital Brands said in June that it was moving closer to the closing of its deal to acquire the apparel brand Sundry, which made nearly $23 million in revenue last year. 

The company in Q2 made $3.7 million in revenue while its operating loss, at about $10.7 million, decreased slightly from last year. After Nasdaq threatened to delist Digital Brand’s stock, the company was granted, after a hearing, until Jan. 17 to comply with the stock market’s listing requirements.

via https://www.aiupnow.com

Ben Unglesbee, Khareem Sudlow