17 Retailers on the 2018 Death Watch
Source: Getty Images A big year for closings
The past year has been a bleak one for many retailers. Over 20 retail chains -- including Radio Shack, Toys R Us, and HHGregg -- filed for bankruptcy, and some were liquidated.
Things are not likely to get better in 2018. They may even be worse.
"I think the early part of next year will be pretty bad ... I think it will be tough," Moody's lead retail analyst Charlie O'Shea told CNBC .
The 17 companies below all struggled in 2017. Many of them closed stores, and some have even filed for bankruptcy at least once before. These aren't the only retailers struggling as we head into 2018, but they are some of the most prominent.
Source: Sears Sears Holdings
Leaving Sears Holdings (NASDAQ: SHLD) off a list of companies not likely to survive 2018 would be like omitting Tom Brady from a discussion of all-time great quarterbacks. Sears has been moving in reverse for years, losing money and closing stores at a remarkable rate.
Sears has survived only by selling off assets and borrowing money from funds connected to its CEO, Edward Lampert. That carousel may stop soon, as the company is running out of things to sell . It currently has $8.1 billion in assets and $12 billion in liabilities as of the close of Q2 2017. With profits remaining a distant dream, it's hard to see Sears making it another year.
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Source: Getty Images Toy R Us
Toys R Us filed for bankruptcy back in September. It also secured $3.1 billion in bankruptcy financing from a group of lenders, though, which suggests that the company will emerge from bankruptcy -- but it's not a guarantee.
The problem is that the climate in which Toys R Us operates has not improved. Some of its brick-and-mortar rivals are selling toys at deep discounts, drawing customers to their stores in hopes that they'll buy higher-margin products as well. Meanwhile, online retailers can often sell toys for lower prices while still turning a profit.
Going forward, the toy retailer has a plan to turn its stores into interactive destinations. That's what it should have been doing for years, but the plan may or may not work in such a competitive environment.
Source: J.C. Penney J.C. Penney
J.C. Penney (NYSE: JCP) isn't in the same dire straits as Sears. That, however, is sort of like saying that someone with one brain tumor is in better health than someone with two.
CEO Marvin Ellison has made some bold moves, and comparable-store sales have been increasing, but the chain continues to lose money. In fact, despite the rise in sales, the chain's loss grew to $128 million in its most recent quarter from $67 million in Q3 2016.
ALSO READ: 2 Signs That J.C. Penney's Management Needs Help
Source: Getty Images Claire's stores
In 2017 Claire's appeared on a lot of lists of companies not likely to survive the year. Its condition has improved slightly: In the most recent quarter, overall sales rose 0.8%, while same-store sales grew by 1.1%.The problem is that the chain is in a precarious financial position. As of Oct. 28, it had cash and cash equivalents of only $25.8 million, down $5.4 million from the previous quarter. It also had $71 million drawn on its credit facility, putting the chain underwater and vulnerable to a downturn in sales.
Source: J. Crew J. Crew
A number of companies on this list are struggling because foot traffic has dropped at many shopping malls. J. Crew, whose stores are generally located in malls, is feeling the effects of this trend. In Q3 the chain's overall sales fell 5%, while comparable-store sales dropped by a gut-wrenching 9%. In addition, the chain's net loss increased to $17.6 million, up from $7.9 million during the same quarter a year ago. The retailer suffered a net loss of $161.6 million through the first nine months of fiscal 2017, up from $24.6 million during the same period in 2016
Source: Charlotte Russe Charlotte Russe
Another mall-based retailer, Charlotte Russe has struggled partly because of lower foot traffic and partly because some clothing sales have moved online. The chain, which appeared on a list of at-risk retailers by Fitch earlier this year, caters to a younger clientele. That audience has been the most willing group to take its business to digital sellers.
Source: Bon-Ton Bon-Ton Stores
Department stores have been hit especially hard in the current retail economy. The Bon-Ton Stores (NASDAQ: BONT) has not been left unscathed. The chain saw its comparable-store sales drop by 6.6% in Q3, and its loss climbed from $31.6 million in Q3 2016 to $44.9 million in Q3 this year.
Bon-Ton has also been closing stores and plans to shutter at least 40 of its locations in 2018. The company has retained AlixPartners LLP and PJT Partners Inc. to provide operational and financial advisory services.
ALSO READ: Is Target Hastening the Decline of Department Stores?
Source: Getty Images Bi-Lo
Bi-Lo, the parent company of the Winn-Dixie grocery store chain, has filed for bankruptcy once before, in 2009. The company survived that ordeal, but it appears to be on the brink of filing again. The chain, which employs about 50,000 people, has roughly $1 billion in debt and is in danger of default, according to Bloomberg .
Source: Getty Imagea Barnes & Noble
Barnes & Noble (NYSE: BKS) has shown some progress in transforming its business by expanding its merchandise and adding more food service, but it remains vulnerable. The chain, which has been losing money and market share for years, saw overall sales drop by 7.9% in Q2 2018. In addition, the retailer saw its loss rise to $30.1 million from $20.4 million in the prior year.
There's no guarantee that Barnes and Noble will be able to staunch its cash-flow hemorrhage. It's also uncertain whether the company's new initiatives, such as putting restaurants and even serving alcohol in some locations, will work.
Source: Getty Images Charming Charlie
Another mall retailer, Charming Charlie recently filed for bankruptcy. It plans to emerge and continue to operate after closing around 100 stores. The company released a statement about its bankruptcy:
At Charming Charlie we are undertaking a comprehensive financial and operational restructuring to ensure that we can move forward with our previously announced Back-to-Basics strategy and continue to serve our loyal customers. For all of our customers, vendors and talented employees --CharmingCharlie.Com and hundreds of Charming Charlie stores across the country are open for business and serving customers.
Despite the company's plan to emerge from its voluntary Chapter 11 filing, there are no guarantees. The company remains exposed to market conditions and its mall-based real estate.
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Source: Getty Images Nine West
Another retailer that declared bankruptcy in 2017, Nine West has closed many of its stores -- and a July report in The New York Post suggested that the rest could soon follow. Because the company is privately held, information on its finances is limited, but the company has been closing down stores when their leases expire. That suggests the company at least wants a much smaller retail footprint as it tries to establish a digital-only (or digital-mostly) mode.
Source: Getty Images Payless It's apparently not a great time to be selling shoes. Payless completed its bankruptcy proceedings in April, which helped it shed some stores and cut some debt. However, the company still faces the same challenging market conditions that forced it into bankruptcy in the first place.
The chain closed 800 stores during its bankruptcy proceedings, but it still has about 3,500 left around the world. That's a tremendous amount of retail exposure in a market that's rapidly moving away from brick-and-mortar stores.
Source: Getty Images GNC
GNC (NYSE: GNC) is not as desperate as many of the other companies on this list. Last quarter even saw the company turn a profit of $21.5 million. That's down from $32.4 million in the same quarter last year, and it's not much of a profit on $609.5 million in sales, but it's better than a loss.
The challenge for GNC is that it has a lot of mall exposure, and its product line is vulnerable to digital rivals. Going forward, it will have a hard time giving consumers a reason to visit stores. In addition, the company recently pulled an attempt to raise money by putting some senior secured notes on offer, " as the terms and conditions offered were not sufficiently attractive to the company for GNC to move forward," according to a press release.That suggests that the funding markets see risk in the company as well. It's not a mortal blow, but it's another telling sign.
ALSO READ: R.I.P. Mall-Based Retailers
Source: Getty Images Vitamin World
After filing for bankruptcy in September, Vitamin World planned to close 124 of its 345 stores and sell the rest off to another company, Newsday reported . The chain had "originally intended to proceed with a plan of reorganization," but "unforeseen operational challenges and liquidity concerns have caused the debtors to now pursue a sale of substantially all of their assets," the retailer's attorneys wrote in a court document.
Source: Getty Images Sears Hometown and Outlet Stores
Like the namesake company it was spun off from, Sears Hometown and Outlet Stores (NASDAQ: SHOS) has struggled. The good news here is that unlike Sears proper, Sears Hometown and Outlet Stores has shown some recent signs that a turnaround could be possible.
In Q3 the company trimmed its loss from $93.2 million in the year-ago period to $10.9 million. It's still troubling, however, that same-store sales fell by 9.1% during the quarter. CEO Will Powell did explain that in the earnings release:
"Last year during the third quarter we made promotional and pricing decisions that proved to be unprofitable," he said. "We did not repeat those actions during this year's third quarter, but as a result, comparable store sales suffered."
Source: DXL Destination XL Group
Another chain that's on this list partly because the overall climate is so challenging, Destination XL Group (NASDAQ: DXLG) showed improved results in its most recent quarter. Total sales rose by 1.8%, while comparable-store sales were nearly flat, dropping 0.1%.
In the earnings release, CEO David Levin said:
"Our third quarter results reflect the difficult retail apparel environment that has persisted for most of 2017. ... Improvements in conversion and average transaction value allowed us to deliver essentially a flat comp for the quarter. On a positive note, store traffic has picked up considerably in the last two weeks of October and the first two weeks in November."Source: Getty Images Perfumania Holdings Inc.
Perfumania filed for bankruptcy in late August, with plans to emerge from the filing as a privately held company. The chain planned to close stores and focus more on its digital operations. It received $84 million in debtor-in-possession financing from its existing lender, Wells Fargo, which is expected to be replaced by a $100 million exit facility upon emergence, according to a press release.
"The company has been working diligently to amend its business model, reduce its cost structure, improve supply chain efficiency, optimize marketing, reduce expenses and improve operating results long-term," said CEO Michael Katz. "Today's actions allow the company to expedite all of these initiatives to create a stronger company with the financial resources to invest in areas that will foster our long-term growth."
Again, the challenge for the retailer is the market and the fact that moving away from brick-and-mortar retail and into e-commerce is not as easy as it seems. It's also telling that after filing in August, the company still has not completed the process and emerged from bankruptcy protection.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.