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Bankruptcy isn’t always the end of a company, but it can be.
We often hear about companies filing for bankruptcy, but it’s not always the end of the road. According to the U.S. Securities and Exchange Commission (SEC), if a company is unable to pay its debts, it can file for Chapter 11 Bankruptcy in order to “reorganize” and “try to become profitable again.” Chapter 7, on the other hand, indicates more serious trouble and applies when a company is out of business and forced to cease operations. In this case, assets are liquidated, then used to pay off any debt. Nearly 22,000 businesses filed for bankruptcy between 2016 and 2020, according to data from the U.S. Courts, and there was a 29.7 percent decrease in filings between 2019 and 2020. In addition, data from Cornerstone Research show that in the first half of 2022, only 20 U.S. companies with over $100 million in assets filed for Chapter 11 bankruptcy. But predictions for the next 12 months are a bit grim, according to new data.
You’ll recognize several of these popular retail brands.
As reported by Retail Dive, there are 18 stores at risk of going under, and some have higher chances than others. As of Sept. 30, 10 companies have between a 9.99 and 50 percent chance of bankruptcy, the outlet reported, citing data from CreditRiskMonitor’s FRISK scores. Last year, that number was only three, indicating mounting trouble for the retail world.ae0fcc31ae342fd3a1346ebb1f342fcb Using this analytic system, the lower the number, the higher the bankruptcy risk the company has over the next 12 months. As you may have guessed, Bed Bath & Beyond made the list of those with a FRISK score of 1, as did other home brands such as Kirkland’s and Wayfair. Digital Brands Group, Express, and The RealReal were the three apparel companies listed, and iMedia brands, Party City, Rite Aid, and Tuesday Morning accounted for those in the television retail, specialty, drugstores, and off-price sectors, respectively. RELATED: For more up-to-date information, sign up for our daily newsletter.
Some high-risk stores might surprise you.
Bed Bath & Beyond has been dominating the headlines lately, thanks to its impending closure of 150 stores. But Tuesday Morning’s inclusion may have surprised you, as the company already filed for bankruptcy once and closed 230 of its 687 locations in 2020. On Sept. 21, 2022, the company announced that it had received a $35 million investment from Retail Ecommerce Ventures (REV), which owns Pier 1, and hopes to “establish a dynamic online presence and digital strategy,” while also selling Pier 1 products. According to fiscal results published just two days later, however, things are currently grim, as the company reported an 8 percent loss in comparable store sales and net losses of $28.1 million for the fourth quarter—a sharp increase from $18.9. million lost at the same time last year. Depending on how successful the new partnership with REV is, Tuesday Morning could be one company filing for “Chapter 22” bankruptcy, which is a clever (unofficial) name for companies that file for Chapter 11 twice. Party City is another big-name brand potentially on the chopping block. Much like a smaller party supply retailer, 50-50 Factory Outlet, which recently went out of business in Wisconsin, Party City struggled with losses during the COVID-19 pandemic. At the time, gatherings were obviously not occurring and demand for supplies slowed. Shortages of helium and increased costs have also created difficulties, and even with holidays like Halloween coming up, Party City faces more and more competition with online retailers, Retail Dive pointed out.
Other businesses have a lower risk.
According to CreditRiskMonitor data, eight companies had a FRISK score of 2, and therefore have between a 4 and 9.99 percent of bankruptcy, per Retail Dive. These predominantly include clothing retailers, such as Abercrombie & Fitch, Farfetch, Lands’ End, Stitch Fix, ThredUP, and Torrid. Also at a lower risk were the home brands Big Lots and Steinhoff, which owns Mattress Firm. Retail Dive included additional data from Creditntell, a consulting firm that considers credit ratings when making predictions. Per this firm, Bed Bath & Beyond, Tuesday Morning, Party City, and Rite Aid are indeed in trouble, as are GameStop, Casper, and Jo-Ann Fabrics.
