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The Largest Retailer Bankruptcies of 2017

By | Trepp

In the first 11 months of 2017 alone, more than 30 US retailers filed for bankruptcy protection. That news certainly made those in structured finance take notice to the mounting concern surrounding brick-and-mortar retail. According to Trepp data, more than $35 billion of CMBS debt is exposed to retailers that sought bankruptcy protection this year.

The main culprit for what many call the brick-and-mortar “retail apocalypse” is the continued growth of ecommerce and transformed consumer trends. Based on Trepp’s CMBS data, we’ve ranked the retailers with the largest amounts of outstanding CMBS debt to file for bankruptcy in 2017.

According to Retail TouchPoints, the slew of bankruptcies this year does not necessarily indicate a weak retail sector, but rather a “survival of the fittest” movement. Retail sector sales increased by 2.6% in 2016, and 5.6% in the first half of 2017. The retailers filing for bankruptcy relief and closing stores have “largely failed to adapt to the shift towards ecommerce and away from malls.” Industry experts also observe that many of the companies declaring bankruptcy are concentrated in a few highly competitive verticals. Leslie Hand, VP of IDC Retail Insights, observes that “the majority of weakness that we have seen is in apparel, footwear and related segments, consistent with our expectation that these segments are overstored, overstocked, and simply out of alignment with consumer share of wallet/spend.

1. The Limited – $14.7 billion

The Limited, which specializes in working woman’s clothing store, declared bankruptcy in mid-January and was subsequently purchased by private-equity firm Sycamore Partners. The Ohio-based apparel company closed all 250 of its US stores, and sold off its ecommerce domain and brand name. The retailer later moved its entire inventory online and relaunched its ecommerce site in late October. About $14.7 billion of CMBS debt across 127 notes is exposed to The Limited, but the majority of these loans are collateralized by large regional malls that do not feature the retailer as one of the five largest tenants by square footage.

2. Toys “R” Us – $5.6 billion

A total of $5.6 billion in CMBS debt is exposed to retail properties that feature Toys “R” Us or Babies “R” Us as a top five tenant. The big-box retailer filed for Chapter 11 bankruptcy protection in mid-September in order to focus on restructuring its $5 billion debt load ahead of the holiday shopping season. Toys “R” Us indicated that the bankruptcy filing will not affect any of the retailer’s operations in the US or Canada. The firm operates 885 Toys “R” Us and Babies “R” Us stores in the US, and is headquartered in Wayne, New Jersey. Since the bankruptcy filing, Toys “R” Us has received a final approval of $3.1 billion in debtor-in-possession financing to continue operations.

3. Gymboree – $5.4 billion

Children’s clothing company Gymboree filed for bankruptcy in mid-June, reporting about $1.4 billion in debt. According to USA Today, Gymboree plans to remain in business but will close up to 450 of its 1,281 stores. The company buckled due to declining mall traffic, as well as competition from digital retailers and established brick-and-mortar purveyors such as Children’s Place and GapKids. Ecommerce sales comprise 21% of Gymboree’s revenue, and its digital platform is reportedly dated and unsupported. CMBS exposure to the retailer totals $5.4 billion between 75 loans, though the majority of those notes are backed by malls that do not count Gymboree as a top-five tenant.

4. Payless ShoeSource – $3.9 billion

Discount footwear retailer Payless ShoeSource announced in April that it filed for Chapter 11 bankruptcy protection and immediately shuttered 378 US stores. In the following months, the number of store closures increased to about 700. In CMBS, 86 loans totaling $3.9 billion are secured by properties that feature Payless as a tenant. However, exposure to the stores marked for closure comes to $935.3 million across 31 loans. The firm emerged from Chapter 11 in August, and a company spokesperson stated that Payless will need to take “additional steps” to create sustainable growth. This includes significant workforce downsizing, and expanding its ecommerce business. According to Payless’ website, the company still operates more than 2,700 US stores.

For the full list of the largest retailers to file for bankruptcy in 2017, download the entire report here.

Compliments of Trepp, a member of the EACCNY