Are you a retailer who is trying to save your company?

Retailers have rarely seen a worse environment for success. With no tourism, virtually no in-store traffic and no further stimulus to tide people over, things look grim. Still, you may be holding out, hoping things will turn around by the end of the year.

Many retailers reason that if they can make it until Labor Day, then they might as well try to stick it out until the end of the year – as the holiday season often brings about a surge in business. Going-out-of-business sales typically take 90 days, and if that time frame intersects with a holiday rush, the store may be able to stay afloat.

Retail hasn’t seen this bad of a time since the 2008-2009 Great Recession, after which retail bankruptcies hit an all-time high. There were just 16 fewer bankruptcy filings last year compared to that time.

Looking ahead

It’s hard to predict when the retail market will improve – and whether it will ever rebound to the way it was before. For example, fashion retailers have to contend with short inventory, because they canceled orders earlier in the year. At the same time, the prevalence of at-home work has changed what people need in terms of fashion.

In 2020, Neiman Marcus, Lord & Taylor, Brooks Brothers and J.C. Penney all entered bankruptcy. Some have been acquired. Some have restructured. Some are gone for good.

As a result of the loss of these mall anchor stores, malls are suffering. So are the stores that rely on mall traffic. Department stores and fashion retailers accounted for more than 50% of stores closed in bankruptcy – and nearly 60% of non-bankruptcy closings, too.

Can you make it through 2021?

The rest of 2021 may act as a stress test for companies. RapidRatings assesses companies’ financial health by calculating two scores: a financial health rating (FHR), which looks at liquidity and short-term resiliency, and a core health score (CHS), which considers mid-term risk and efficiency. Together, the scores may be able to predict default.

With an FHR under 40, a company has extremely poor financial health in the short term. Without a higher CHS, a company probably stands little chance of recovery.

Do you have the liquidity to carry your store forward into next year, assuming you have a reasonably good holiday season?

If not, you may wish to consider reorganizing through Chapter 11 bankruptcy. Although many people cringe at the possibility of bankruptcy, it could save your company. Chapter 11 allows you to reorganize and shed some debts. It could also help you make it through 2021, when there will likely be far less competition for your business.

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