Things are not great in brick and mortar retail, and they really haven’t been for some time.  Most people are aware of this, but this is a quick note on the status of retail bankruptcy cases and the outlook for the year.

Lions Gate Television Inc. ; created by Matthew Weiner. Mad Men. Season One. Santa Monica, CA :Lionsgate, 2008. Print.


In 2017, there were more major retail bankruptcy cases filed than during any given year of the “great recession”.  Twenty-six in total with at least $50MM in liabilities.  Obviously a large number.  The question is whether that trend will continue into 2018 (or, alternatively, if there any more retailers of that size to go under).

So far this year, there have been at least 5 major retail bankruptcy filings.  S&P Global Markets has identified 19 retailers who it believes is at risk of filing bankruptcy in 2018.  While not quite at the record 26, this is still a large volume of retail to go into bankruptcy.

The effects of these bankruptcies often leave a huge hole in retail centers and may have a ripple effect with landlords across the country.  Toy’s R Us recently ceased operations and will liquidate all 735 stores in the U.S.  (Interesting side note, the lead attorney for Toys R Us sang the iconic Toys R Us jingle on their first day in Court.).

I am already hearing from landlords that there is little desire to lease to retail because it’s almost a foregone conclusion they will fail.  The preference seems to be restaurants. Because of the terms of these leases (in years) it’s likely to change the landscape of what these consumer facing developments look like for some time.

In addition to landlords, the equity funds who commonly have bought out and leveraged these retail stores may also feel the pitch.  A common theme repeated in the Toys R Us case is a leveraged buyout which places an un-serviceable amount of debt on the company leading to failure.  In the case of Toys R Us, the total debt is about $5 billion, requiring about $400MM annually to service.  That’s a lot of Paw Patrol to sell.

The cause of the decline of brick and mortar retail is beyond this blog post.  However, the effect on lenders who have loans out to these retailers will likely be negative again this year.

For all of those lenders, now would be a good time to review your collateral position in hard assets and consider cash flow when a renewal is requested.  Might also dust off that landlord subordination agreement to see if there is anything else you need to add.  I work on these quite frequently and they can go south pretty quick.