More purchases online is one of the top reasons for the increase in business bankruptcies. Consumers are not shopping at brick and mortar stores as they once did, choosing instead to shop from the comfort of their home. Online sales,though, is not the reason why businesses are failing. Over half of the filings are from businesses that were purchased previously by private equity firms. When compared to the last five years, that number is up 31 percent.
When a private equity firm purchases a retailer, it’s known as a leveraged buyout. The private equity firm uses a combination of debt and equity to purchase a business. In the process, the company is left with a huge amount of debt. This is because many of the private equity firms fail to invest enough money in critical areas, such as digital operations or the band’s stores. With many businesses struggling to get the cash they need, the rise in interest rates is going to make it harder for debt refinancing
Moody’s distressed list of companies is also at it’s highest since the recession. It looks as though this trend involving retailers could be around for awhile.
Many retailers are closing up stores around the country, including Payless Shoes, which announced it will be closing 500 stores and filing for bankruptcy. The other retailers that have filed for bankruptcy include:
— Gander Mountain
— General Wireless Operations (also known as Radio Shack)
— BCBG Max Azria
— Michigan Sporting Goods Distributors
— Eastern Outfitters
— Wet Seal
— Limited Stores
While business bankruptcies are on the rise, it appears that consumer bankruptcies are also on the rise. Filings rose 5.4 percent in January compared to January 2016. If you are experiencing debt problems, you may find the answers you need from a bankruptcy attorney.
Source: CNBC, “Retail bankruptcies march toward post-recession high,” Krystina Gustafson, March 31, 2017