These Big Retailers Are Feeling Financial Pinches

WeWork’s bankruptcy caught a lot of attention from commercial real estate, for obvious reason. But there’s more going on with other companies. The country is coming off a big major corporate bankruptcy wave and some big retailers are feeling the financial pinch.

To put everything into context at the start, last year was, by the measure of bankruptcies, a hard one for business. WeWork in CRE, obviously, but 2023 was the worst year for corporate bankruptcies — 642 in total filings — since 2010’s 827, according to S&P Global Market Intelligence. Even with the expectations of Federal Reserve rate cuts eventually this year, “companies will still have to contend with relatively high interest rates and robust wage growth in the near term.” And there are signs that consumers may scale back their spending.

As MarketWatch reported, three big retail chains — Big Lots Inc., Express, and The Children’s Place — have shown signs of distress. Big Lots had 1,425 stores as of the beginning of 2023 according to its most recently available annual report. In early 2023, Express had 553 stores. The Children’s Place had 613.

The Children’s Place filed notice with the Securities and Exchange Commission on February 15, 2024, that “it has been seeking to improve its liquidity position and strengthen its balance sheet” and “announced its entry into a non-binding term sheet” with Gordon Brothers for a $130 million term Loan. Also, two Saudi investment firms together have taken a 54% stake in the company, according to MarketWatch.

Express’s 10-Q from December 2023 listed a number of financial risks, including “substantial lease obligations,” “the financial and other effects of our workforce reduction and other cost reduction actions, including our ability to realize the benefits from such actions within the anticipated timeframe,” “asset based requirements related to inventory levels, ability to make additional borrowings, and restrictions on our ability to repurchase shares of our common stock” under the terms of current credit facilities, and “our inability to maintain compliance with covenants in our current credit facilities.” The Wall Street Journal wrote that the company “is preparing for a debt restructuring that could include filing for bankruptcy within weeks, according to people with knowledge of the matter.”

And even though Big Lots said on February 12 that it had “generated substantial cash flow in the quarter, which was used to pay down debt on our $900 million asset-based lending facility,” Bloomberg reported a few days before that the company “has been seeking new financing as it grapples with years of losses and dwindling liquidity, according to people with knowledge of the company’s efforts.”

All this leaves the question of whether other retail chains might be feeling pressure and what the potential impact on CRE property owners could be. As WeWork showed, if a bankruptcy procedure comes about, there can be significant consequences to existing leases.