The Amazon Effect: Retail Bankruptcies Surge 110% In First Half Of The Year

As Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world's richest man on for size if only for a few hours, for Amazon's competitors it's "everything must go" day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July.

According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street's easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt - mostly in the energy sector - rolled out of the default universe.

In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign."

He's right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary.

And if recent trends are an indication, the latter will only get worse as Fitch expects Claire’s, Sears Holdings and Nine West all to default by the end of the year, pushing the default rate to 9%. "The timing on Sears and Claire’s is more uncertain, and our retail forecast would end the year at 5% absent these filings," Rosenthal wrote.

Putting the retail sector woes in context, Reorg First Day has calculated that retail bankruptcies soared 110% in the first half from the year-earlier period, accounting for $6 billion in debt.

The list includes name brands such as Gymboree, Payless, rue 21 and the Limited, all of which cited the Amazon affect as a contributor to their downfall.

“Many retailers have echoed the familiar cries of those that filed before them—the proliferation of online shopping, rapidly deteriorating brick-and-mortar retail, the rise of fast fashion, hefty lease obligations and shifting consumer preferences,” Reorg First Day said in a midyear review.

While it is far from empirically, and certainly scientifically established, every incremental retail bankruptcy should add approximately $5-10 billion to AMZN's market cap, further cementing Jeff Bezos as the world's richest monopolist man.

Comments

Creepy_Azz_Crackaah (not verified) curbjob Sun, 07/30/2017 - 22:12 Permalink

Amazon and Walmart don't have exclusive control of anything.  People who don't care whether local businesses to fail buy from them.  They have a choice.A long time ago I used to think that owning commercial real estate was a great way to do well.  I don't think that any more.  I see a LOT of vacant retail now.

In reply to by curbjob

Son of Loki winged (not verified) Sun, 07/30/2017 - 23:29 Permalink

That's my understanding also. If Americans were not Broke Donkeys, there'd be plenty to go around for Amazon as well as the B&M. People used to enjoy going to mall as entertainment and perhaps buy a little something. No more.Americans are broke and malls/parking lots are too dangerous. The economy for many many people is a disaster and tghen you add Obamacare and it's fatal to many.8 years of extreme fanatic left wing politics and Obamanomics has consequences.It's shameful.

In reply to by winged (not verified)

Retired Guy Michael Musashi Mon, 07/31/2017 - 09:07 Permalink

The millenials in large numbers have opted to spend their time enjoying the internet, drugs and video games in mom's basement. Without house and family what do they need at the mall? Have you seen all the excess clothing at patio sales. Does anyone really need to buy clothing for every style change some corporation dreams up? The mall stores pay hideous rent. They have to charge high prices. Fortunately I don't have to pay their rent by buying from them. The mall decline would happen even if Amazon didn't exist.

In reply to by Michael Musashi

TuPhat Retired Guy Mon, 07/31/2017 - 09:38 Permalink

Internet sales are doing well because the brick and mortar stores fail to keep their stores stocked properly.  I have been to Lowes, Home Depot, Walmart and a local lumber store to find the grass trimmer that I wanted.  At the first three stores the product they supposedly stocked was not available.  At the local lumber store they didn't stock the product I wanted but it is available on the internet.  If they run their business right they won't lose sales to the internet.  I have to drive an hour to get to a Lowes or Home Depot.  That doesn't happen very often anymore since they don't usually have what they say they have when I look online.  The store clerks apologize and say the product should be there because the computer says they have several in stock but none can be found.  I get tired of that real quick.

In reply to by Retired Guy

Cloud9.5 Shocker Mon, 07/31/2017 - 07:23 Permalink

With just in time inventories, we saw the end of warehouses.  With the rise of big box stores we saw the end of mom and pop stores.  With the rise of Amazon, we may see the end of big box stores.  When supply chains break, where is the store of food?  I do see Dollar General type stores popping up like mushrooms.   Maybe decentralization is the reverse trend in retail.

In reply to by Shocker

Advoc8tr Bay of Pigs Sun, 07/30/2017 - 23:07 Permalink

if nobody shopped there it wouldn't be so. He is correct - they do not have a monopoly by regulation.  Once again the dumb ass herd is the problem.  Just stop shopping at Amazon if you object to their size advantage and if enough people give a fuck the problem is solved.  Asking / demanding the government to solve every problem with regulation is what got us into this mess in the first place.

In reply to by Bay of Pigs

Justin Case Bay of Pigs Sun, 07/30/2017 - 23:27 Permalink

able to get so incredibly large and destroy so many small businessesI'll take $100 for "What is capitalism"Capitalism is based on the private ownership of the productive forces by anyone that wants to own their own business?Sorry wrong!Capitalism is a society where billionaire capitalists own vast companies, banks, shares, and much of the land as well. Elected governments are bent to the will of the big corporations which the capitalists own. To achieve genuine socialism, this ownership of the world's wealth by the 1% must be ended. Capitalism means that a great deal of our society's resources, needed to produce the things we need, are privately owned. Buy and destroy any competition at any cost.Next.   

In reply to by Bay of Pigs

new game Bay of Pigs Mon, 07/31/2017 - 06:22 Permalink

Choice you say? not really. china junk quality proliferates those choices. even the high quality brands like toyota, honda, lg, miele, ect have cheapened. try to buy quality? still some of the "made(assembled) in usa" stuff is "better" quality. but,still we are in a disposable society by design...not to mention planned obsolessence...

In reply to by Bay of Pigs

curbjob Creepy_Azz_Crackaah (not verified) Sun, 07/30/2017 - 22:19 Permalink

They certainly do have control over pricing from their vendors.They both routinely threaten manufacturers with contract cancellations which, since they often represent such a large piece of a suppliers production, would essentially put that company out of business. I understand that pricing is often based on quantity ,  but both these companies (and others) use what amounts to extortion to destroy the competition .  

In reply to by Creepy_Azz_Crackaah (not verified)

curbjob curbjob Sun, 07/30/2017 - 22:31 Permalink

Free labor.When you see product displays at Walmart stores in right to work states, very often that merchandising is done by the supplier at no cost to Walmart, while the same product delivered to a mom and pop business requires the hiring of someone to stock and merchandise.If you aren't prepared to merchandise, go fuck yourself. Now how does say a wine importer, compete with other importers when they're shut out of the biggest market in the US ?

In reply to by curbjob

Offthebeach curbjob Mon, 07/31/2017 - 07:38 Permalink

Sold to Wal-Mart.  Went to Benton twice a year.  Very fair.  Good service on their part.  We had...3-5 SKUs.  Other major world wide dominator, like P&G size with 30+ SKUs right with us, wanted our little few spaces.  Told Wal-Mart, us or them.  Wal-Mart told them walk if you want, we stay.  Never forgot that.

In reply to by curbjob

CheapBastard pitz Mon, 07/31/2017 - 07:46 Permalink

Despite tons of empty strip mall space, somehow more strip malls are being built. Every few blocks there's another one with almost the same stuff; nail parlor, Pho Noodles, Postal Store, donut shop, cleaners, iol change/car repair place, Starbucks, etc. Who finances these additional malls when there's gobs of vacant spaces already?

In reply to by pitz