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Is Payless — the wallet-friendly family shoe chain — the latest harbinger of retail woes?
A day after the St Louis-based company filed for Chapter 11 protection, Fitch Ratings analysts said in a report that the bankruptcy had increased its US retail trailing 12-month (TTM) default rate to 1 per cent.
Last month it stood at 0 per cent, after hitting 0.5 per cent at the end of February, Fitch said.
That rate is expected to climb to 9 per cent over the next 12 months, translating to about $6bn in defaults, according to the report from Sharon Bonelli and Eric Rosenthal, both senior directors of leverage finance at Fitch Ratings.
The gloom continues:
Fitch’s expectations of increasing retail defaults stems from increased discounter (including off-price and fast-fashion apparel) and online penetration, and shifts in consumer spending toward services and experiences. All of these factors have created a highly competitive retail environment and accelerated mall traffic declines. Retailers have also suffered from the ebb and flow of brand popularity. Negative comparable store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.
The debt woes of private equity-owned Payless — it was acquired in highly leveraged 2012 buyout — had earned it a spot on Fitch’s Loans of Concern list, which contains issues it deems have a “significant risk of default” over the next 12 months. Eight other retailers are also on the list, including:
- 99 Cents Only Stores
- Charming Charlie
- Nine West Holdings
- NYDJ Apparel
- rue21 Inc
- True Religion Apparel
Will one of those companies be the next retailer to bite the bankruptcy bullet? Stay tuned.