Retailers in the United States are stressed. They are facing difficult times from a wide array of sources: Amazon, a decline in foot traffic and diminishing credit.
According to a study by Moody’s (via Marketwatch), nearly one-fifth of its retail names are hovering near the lowest level of the credit rating spectrum. The rating agency notes that 14 percent of its total retail and apparel portfolio are trading at Caa/Ca. This means that they are sitting in speculative or junk territory.
Ostensibly, this figure is inching closer to the 16 percent that were deemed distressed during the economic collapse of 2008 and 2009.
Researchers say that retail has replaced oil and gas as the most troubled industry in the U.S. today.
Moody’s says that 19 retailers have close to $4 billion of debt maturing within the next five years. Moreover, nearly one-third of that total will be due by the end of 2018. When you add private credit into the equation then the number is even higher.
“While credit markets continue to provide ready access for companies spanning the rating spectrum—allowing many to proactively refinance debt and bolster balance sheets—that could change abruptly if market conditions or investor sentiment shift,” said Moody’s retail analyst Charles O’Shea in a statement.
“As they struggle to survive, distressed retailers can take more desperate measures, including highly promotional pricing that can border on irrational. This leaves stronger firms with the choice of either competing in a race to the bottom, or giving up sales in order to preserve margin.”
Some of the brands listed by Moody’s include Sears, Nine West, Fairway Group and J. Crew.
With a growing number of shoppers heading online, particularly to Amazon, stores have no other choice but to offer deep discounts, embrace automation and shift their operations to the digital landscape. Once the average consumer is completely tapped out, more retailers will shut their doors.