5 retailers that may not survive 2017

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Is the end in sight for brick-and-mortar retailers?

Cheddar CEO Jon Steinberg and James Freeman of The Wall Street Journal on whether the end is near for brick-and-mortar retailers.

 

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So far, 2017 has not been kind to retailers. In the first three months of the year, nine retailers declared bankruptcy -- the same number that went bankrupt throughout all of 2016.

Bankruptcy isn't always a death sentence. Sometimes a company can find a bank or other entity to loan it the money it needs to emerge from bankruptcy and continue operating. Rue21, Payless, Gymboree, and Bebe all filed for bankruptcy recently, and yet each of the chains expects to stay in business. However, some companies -- like HH Gregg and all corporate-owned Radio Shack locations -- don't survive a Chapter 11 bankruptcy filing. Instead of being able to reorganize and recapitalize, they go out of business for good.

It's impossible to know which chains will survive bankruptcy. However, for the five following retailers, things are looking pretty grim. Despite these companies' defiant and hopeful statements about their futures, there's a real possibility they won't live to see 2018.

 

Sears Holdings

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No list of stores on the verge of collapse would be complete without Sears Holdings (SHLD). The parent company of Sears and K-Mart has been closing stores, shifting debt commitments, selling assets, and even borrowing from CEO Eddie Lampert to meet its financial obligations. 

Sears still has company-owned real estate and other assets to sell, but continued losses put it at risk of closing if buyers for those properties fail to emerge. In addition, the chain could be forced to close its doors if vendors grow wary of its financial troubles and refuse to sell it merchandise for the holiday season.

 

Sears Hometown and Outlet Stores

Despite being spun off from Sears Holdings, Sears Hometown and Outlet Stores (SHOS) has not escaped the woes of its one-time parent brand. The chain may be suffering from association with a failing brand, but it's also doing badly on its own.

In the first quarter of 2017, the company suffered a net loss of $17.8 million -- five times the amount it lost in the same period of last year. In addition, comparable-store sales decreased 7.3%, and its stock price has steadily declined, losing more than half its value in the past 12 months.

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Bon-Ton Stores

Another department store chain that has struggled in the face of digital competition, Bon-Ton (BONT) has also been closing stores in an effort to survive. The chain has been steadily losing money, and the hemorrhage grew worse in Q1 2017: During that three-month period, the retailer lost $57.3 million, compared with a net loss of $37.8 million in the first quarter of fiscal 2016. It also posted an 8.8% drop in comparable-store sales, which doesn't bode well for the odds of a turnaround. 

 

Conn's

Perhaps one of the lesser-known players on this list, Conn's (CONN) has struggled for a long time, and its ability to survive has long been in doubt. The chain has managed to stem the outflow of cash somewhat: In Q1 of fiscal 2017, it lost $2.6 million, which is a substantial improvement over the $9.7 million it lost in the year-ago period.

However, those improvements were realized through deep cost-cutting, and total sales dropped 12.3% year over year. Conn's expects comparable-store sales to finish the year down by 12% to 15%.

As of June 6, Conn's had $128.8 million of immediately available borrowing capacity under its $750 million revolving credit facility, along with $112.8 million of unrestricted cash available for use. A further $615.4 million may become available under its revolving credit facility if it can grow the balance of eligible customer receivables and total eligible inventory balances under the borrowing base.

 

Payless

In April, Payless released a plan, approved by a bankruptcy court, to continue operating under Chapter 11. The deal allowed the company to pay certain expenses, including employee salaries and health insurance. It will also be allowed to pay vendors and suppliers for goods and services provided on or after the date of the Chapter 11 filing.

"The Court's approvals also affirmed on an interim basis access to $245 million of the $305 million Debtor-in-Possession (DIP) financing facility provided by a lender group led by Wells Fargo," says the Payless website.

That positive development was soon followed by more good news: The same judge also approved Payless' late-July plan to emerge from Chapter 11 with its debt cut from $850 million to just over $400 million. That would put the company in a better financial position, but it wouldn't change the market Payless operates in. As we saw with Radio Shack, which survived a first bankruptcy, emerging from Chapter 11 can sometimes mean simply delaying the inevitable.

 

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Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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