[4/17/17] Death waits for no man — or retailer, for that matter. As e-commerce continues its gradual encroachment on brick-and-mortar store traffic and sales across the board, the most vulnerable retailers are on thin ice. Already this year we’ve seen several retailers — including fellow teen apparel retailer Wet Seal and women’s apparel retailer The Limited — succumb to bankruptcy. The number of retailers who have filed for bankruptcy this year — 9 at last count at the end of March — has already equaled the total number of retail bankruptcies for 2016 and is on pace to for the highest year on record since the recession.
Rue21 may soon be next in line as mall-based apparel retailers in particular struggle to deal with lower foot traffic to malls. “Way too much leverage and declining mall traffic trends are just the death knell,” Debtwire Associate Editor Reshmi Basu told Retail Dive earlier this year, calling Rue21 a “poster child” for mall-based apparel retail.
A blunt Fitch Ratings report last fall singled out Rue21 as one of seven retailers with tenuous futures. “The lack of proprietary products in many categories leaves retailers vulnerable to permanent traffic decline resulting from the rise of competitors (for example, discounters and online-only players),” Fitch said, pointing out that mall-based apparel brands in particular can quickly become irrelevant as consumer sentiment changes. “The outcome in either case is that the bankrupt retailer has lost its place in the market and thus has limited value as a going concern.”
In January, Rue21 appeared in another Fitch report citing retailers most likely to default on their loans. Many lenders think the company can’t take on any more debt, according to Basu. Factor firms are getting nervous and not approving shipments, though Debtwire noted in a recent report that management has said it continues to have factor support.