Retailers Should Get Ready For Another Stressful Year In 2018
The stress in the retail sector that has triggered a string of bankruptcies this year is unlikely to get much better in 2018. The sector is expected to again produce the most defaults at up to $7 billion, resulting in a 10% default rate, Fitch Ratings said Thursday. The September trailing 12-month retail default rate stood at 7.3% after Toys ‘R’ Us Inc.’s bankruptcy filing, up from just above 5% in July and August. The retail sector accounts for 30% of the defaults that have taken place in 2017 to date, with six issuers defaulting on debt totaling $5 billion. The retail sector has been hit by a combination of factors, including competition from Amazon.com, and a greater shift toward online shopping that has forced many to invest in technology at a time when sales are soft. Consumer behavior has changed as the millennial generation comes of age, and retailers are now competing for dollars with smartphones, apps, and electronics, as well as experiences such as travel and entertainment. Mall traffic has dwindled in many places, pressuring the anchor tenants that relied on them for sales. The overall institutional leveraged loan default rate is expected to end 2018 at 2.5%, said Fitch, equal to about $27 billion of debt. Read more at MarketWatch.
