Retail bankruptcies are set to come back into play in 2023 after a relatively slow year in 2022.
Between the start of 2023 through the end of February, six major retailers filed for bankruptcy, according to BDO’s bi-annual bankruptcy report. That’s more than the total number of retail bankruptcies in 2022, a year in which retail sales were relatively stable until the last quarter.
In total, 391 companies filed for bankruptcy in 2022, a new 13-year low, according to S&P Global Market Intelligence data.
Tuesday Morning, Party City, Forma Brands and Independent Pet Partners Holding are among the six retail companies who have filed for bankruptcy thus far in 2023. According to the BDO report, which was written by BDO’s leader of business restructuring and turnaround services practice David Berliner, most of these companies sell mainly discretionary items, which are less of a priority for consumers dealing with inflation.
The surge in bankruptcies at the start of this year could be due to the impact of retailers dealing with a slump in sales post-holiday, the report explained.
Watch on FN
“The post-holiday season is one of the most difficult times of the year for retailers,” Berliner wrote. “They face lower sales and need to buy new summer inventory at a time when they cannot pass increased costs on to consumers.”
As such, 2023 might see more bankruptcy filings in the long run, but the pace will likely slow down throughout the year.
Despite the surge in bankruptcies, store opening announcements in 2023 have thus far outpaced closures this year. Retailers have announced about 2,600 store closures and 5,100 store openings for the year, according to Coresight Research cited by BDO. Store openings this year have been mainly led by dollar store and discount chains, which have benefitted from cost-cutting consumers.
According to a December report from UBS, department store closures will likely lead the way when it comes to closures in 2023. Macy’s in 2020 outlined a plan to close 125 stores in lower-tier malls by 2023. And in June, Morningstar analysts identified 10 Kohl’s properties that are set to expire before fiscal year 2023.
Berliner also noted that discretionary goods retailers will likely be the ones to close stores in 2023 to cut costs, though store openings will still likely outpace closures in 2023.
“Overall, while we expect store closings to increase in the first half of 2023, the number of openings will still likely exceed the number of closings,” Berliner wrote.
To succeed in 2023, Berliner suggested that retailers address inventory issues, focus on cutting costs and prepare themselves for uncertainty.
In recent quarters, retailers such as Allbirds, Wolverine and Walmart have implemented cost cutting measures such as layoffs, restructures and divestments to keep their businesses profitable.
