Not every retailer is driving billions of dollars in free cash flow each year and plowing billions of it back into the business a la Walmart. And for those retailers unable to do that and position for the future of shopping, it could lead to major financial challenges coming out the other side of the COVID-19 pandemic.
A total of 15 publicly traded retailers were placed on the "most vulnerable" list in a new research report from S&P Global Market Intelligence (see chart below). The top four retailers on the list — J. Jill, Twinlab, SunStock, and Merion — have a greater than 20% probability of defaulting on their debts over the next year, according to the report. The probability of default for each further increases zooming out to a two-year timeframe.
All four retailers have high-risk CCC or CCC- implied credit scores, reflecting their challenged fundamentals.
S&P Global Market Intelligence devises its probability of default calculation using several inputs.
"The probability-of-default, or PD, model, devised by the Credit Analytics branch of S&P Global Market Intelligence, calculates a median one-year market signal probability of default for 64,000 public companies across the world. The figure represents the odds that a company will default on its debt within the next year based on fluctuations in the company's share price and other country- and industry-related risks," the analytical outfit says.
Meanwhile, the doom and gloom in retail from 2020 has carried over into 2021.
Despite consumers spending more aggressively in January due to a fresh round of fiscal stimulus, retailers continue to battle high fixed costs and empty stores as people buy online. The shift in consumer behavior remains a key stress point on almost all retailers, but especially those legacy specialty retail brands unable to evolve.
There have been six retail bankruptcies so far in 2021, according to S&P Global Market Intelligence. The two most prominent ones include beauty products seller L'Occitane and toy retailer MMD Holdings. A total of 52 retailers went bankrupt in 2020, S&P Global Market Intelligence finds. More than 8,700 retail stores closed up shop in 2020, per Coresight Research.
Coresight estimates there could be 10,000 retail store closures on tap for 2021.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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