NEW YORK (Reuters) – As U.S. retailers prepare for the upcoming back-to-school and holiday shopping seasons, there may also be an uptick in the number of retailers that are preparing for a trip to bankruptcy court, two retail experts said this week.
Retailers, still shell-shocked from the wave of chains that filed for bankruptcy and were forced to liquidate last year, have been trying their best to avoid bankruptcy, the experts told the Reuters Global Retail Summit in New York. But this year’s holiday season is not expected to be any better than in 2008, so a growing number may find themselves with no savior but bankruptcy.
“I expect that the numbers of bankruptcies are going to increase throughout the year as retailers now have to start spending money to increase inventory for Back-to-School and the Christmas season and they don’t have the necessary funds,” said Matthew Bordwin, managing director at KPMG Corporate Finance, who works with troubled retailers.
“I think you would expect to see more in the third quarter and fourth quarter and definitely following Christmas,” Bordwin said. He said he was surprised there were only a handful of retail bankruptcies so far in 2009, as consumers have not been much more willing to open their wallets.
“The auto stores, the dollar stores and off-price merchandise seem to be the only categories that are holding their own,” Bordwin said. “It looks like everybody else’s same store sales continue to decline, and there’s only so long that can go on.”
Nina Kampler, executive vice president of strategic retail and corporate solutions at Hilco Real Estate, also said she expects to see more retail bankruptcies in the coming months, as retailers struggle with interest payments on their debt or find themselves unable to pay back loans that are coming due.
“You file bankruptcy when you can’t keep your debt serviced,” Kampler said at the summit in New York.
“There are a lot of people who have been trying to do a debt restructuring out of bankruptcy, and may not be able to finish doing it successfully. And if they can’t finish it, what will happen is they’ll have to file.”
Kampler, who also specializes in working with retailers hoping to dispose of troubled locations, said she personally has spoken to several companies that have tried unsuccessfully
to work out their problems, and have recently hired bankruptcy counsel and are preparing a filing.
The tipping point for many of these companies may be a struggle to get inventory in their stores, as vendors are increasingly demanding cash-on-delivery for their goods.
“Retail stores that buy less are trying to hedge, but when you walk into their stores and see their shelves half-filled, those become almost self-fulfilling prophecies,” Bordwin said.
(Reporting by Emily Chasan; Editing by Gary Hill)