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Bankruptcy Is The Only Choice For Many Retailers

Retail

By the end of this year, retail store closures in the U.S. could reach 12,000, and by 2026, UBS forecasts that 75,000 stores will close down.  For many retailers these days, bankruptcy is the best-case scenario. 

This week saw retail get a bit of a reprieve on Wall Street, with Low’s moving higher, and Target, too, on signs of a solid consumer economy. 

Lowe’s jumped 11 percent Wednesday and has held steady since: 

(Click to enlarge)

Target soared 19 percent on Wednesday, also continuing gains: 

(Click to enlarge)

But many retailers aren’t feeling the optimism.

The downward spiral seemed to start off most noticeably last year when Toys “R” Us closed all 735 locations in June 2018. 

On August 6, luxury department store Barneys New York filed for bankruptcy and put itself for sale, citing soaring rents and a significant decline in traffic. Barneys secured a $75 million deal from Hilco Global and Gordon Brothers Group to stay afloat during its Chapter 11 proceedings. It will close many of its stores, 15 of its 22 locations, including stores in Chicago, Seattle and Las Vegas, as well as most of its outlets.

Related: Will The Stock Market Really Crash If Trump Isn’t Re-Elected?

Payless ShoeSource also filed for Chapter 11 for the second time in two years in February this year, and has already closed its doors to more than 2,300 locations in the U.S. and Canada by the end of June. 

Charlotte Russe, women’s clothing retailer, is meeting a similar fate, filing for bankruptcy in March and closing down more than 500 stores.

Perkins & Marie Callender’s filed for bankruptcy on August 5. In an attempt to restructure, the retailer closed 29 locations, 10 Perkins and 19 Marie Callender's restaurants, leaving 1,190 employees out of a job.   

Other retailers including Beauty Brands, Innovative Mattress Solutions, Shopko, Gymboree,  FullBeauty Brands, Things Remembered, Diesel, Z Gallerie, Roberto Cavalli and Kona Grill have also filed for bankruptcy in 2019. 

The momentum has shown no signs of slowing. 

Numbers show that so far U.S. retailers have announced 7,567 store closures and 3,064 store openings, compared to 5,864 closures and 3,258 openings for the full year 2018.

The online trend is killing brick and mortar. UBS estimates that online retail’s market share will rise to 25 percent from 16 percent, and that with each 1-percent gain for online retail, between 8,000 and 8,500 brick and mortar stores will close by 2026, as reported by Forbes. 

Bankruptcy is the only clear path to restructuring for sale or market re-entry. 

In this retail apocalypse, there weren’t many stocks that looked smart when Wall Street rallied this week, outside of Lowe’s and Target, but here are three other stocks to keep an eye on for anyone willing to risk retail: 

- Best Buy (NYSE:BBY): Earnings are to be released on August 29th, and Wall Street expects a year-over-year increase in earnings on higher revenues. 

- Ulta Beauty (NASDAQ:ULTA): ULTA is also set for earnings on August 29th, and it has been a fairly consistent outperformer. 

- Tiffany & Co. (NYSE:TIF): After losing 34 percent in 12 months, despite an earnings per share increase of 38 percent, TIF stock is back on the upswing. 

By David Craggen for Safehaven.com

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