How Zombie Retailers Are Dragging Down The Industry

Zombie retailers—companies that are living on the edge of bankruptcy—such as Sears Holding Corp., Payless Shoesource Inc. and J.Crew Group, Inc. are undermining the margins of healthier companies such as Macy’s Inc. by keeping significant amounts of uncompetitive, brick-and-mortar capacity alive while more traditional retailers struggle with their online competitors, according to The Wall Street Journal. The fraction of retailers whose debt Moody’s Investors Service has rated as either speculative or worse—currently standing at 13.5% of the retailers it rates—has surged since the end of 2011, when it stood at 5.6%, and is currently nearing the figure of 16% reached during the financial crisis, the Journal reported. A Republican proposal to tax imports could make the situation worse, according to CNBC. Stephen Sadove, who is on the board of the National Retail Federation, described this potential policy as “the biggest threat” that retailers have seen in years during a CNBC interview. The retail industry could also suffer should the United States pull out of the North American Free Trade Agreement (NAFTA). Read more at Investopedia.