The situation doesn’t look good at all for a large number of U.S. retailers. New research found that over a quarter of retailers in America could be a few months away from going bankrupt, and many are already facing collapse due to severe supply chain disruptions that are causing shortages of consumer favorites, massive inventory gluts of products that aren’t selling, and price imbalances that have been threatening their profits. According to industry insiders, we are set to see a wave of retail bankruptcies before year’s end as problems continue to pile up and consumer spending keeps going down.!
A new survey found that more than 25% of U.S. retailers are at risk of going broke in the next three months due to worsening supply chain issues. Even as the busiest shopping season of the year for retailers is right at the corner, a sharp drop in consumer spending and changing consumer habits are taking a heavy toll on their profit margins. Demand planning software, Bright, conducted a survey in August that found 85% of U.S. retailers have been hit by supply chain disruptions in the last year. At the same time, almost half of e-commerce retailers, including Amazon, have experienced stockouts, resulting in sales losses.
The crisis is getting so critical that 26% of respondents said they were in danger of running out of cash if conditions do not improve soon – a major threat to their survival. The survey also found that shortages of highly demanded goods, including groceries, electronics, and clothes were the biggest problem, experienced by 68% of respondents. Other challenges included soaring shipping prices, suffered by 64% of firms, extended delivery times for essential products, mentioned by 54% of them; suppliers facing selling out of stock, noted by 46%, and higher costs of raw materials, affecting 40% of companies.
Very recently, several big-box retailers, including the world’s largest retail chain, Walmart, announced the cancellation of billions of dollars in orders, plans to hike prices of consumer favorites and hinted that lay-offs are on the horizon. A few weeks ago, customers could see signs placed on Walmart shelves asking for comprehension about stockouts of meat and fresh produce caused by “supply chain problems beyond our control”, the company said.
According to CNBC, the entire U.S. retail industry is set to face a massive wave of bankruptcies this year following a monthslong slowdown in restructuring activity. Industry insiders are warning about an increase in the number of distressed retailers, “as ballooning prices dent demand for certain goods, stores contend with bloated inventory levels and a recession looms,” it reported.
At this point, restructuring experts say they’re preparing for more trouble across the industry as the all-important holiday season approaches. “We have potentially a perfect storm brewing,” stressed Sally Henry, a professor of law at Texas Tech Law School and former partner at Skadden, Arps, Slate, Meagher & Flom LLP. “I wouldn’t be surprised to see an uptick in retail bankruptcies.”
As other retailers follow similar measures, profits are set to take a deep dive in the near term, warned Joseph Malfitano, founder of turnaround and restructuring firm Malfitano Partners. “And when a retailer’s profit margins shrink as its inventories are reappraised — a routine practice in the industry — those inventories won’t be worth as much. A company’s borrowing base could fall as a result,” he explained.
All of this means that the upcoming holiday season may not be an opportunity for retailers to break even on profits, but actually mark a make-or-break moment for companies that are already struggling to survive. Another chapter of the retail apocalypse is unfolding right as we speak, and all evidence shows that disaster is on the horizon.
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