The retail collapse is spreading outward through the bankruptcy auction process. Retailers are attending bankruptcy auctions and are buying up assets at bargain prices. The problem is that they are buying assets by borrowing at low interest rates and going further into debt. As the US consumer spends less at retail stores because of rising interest rates, any retail company heavily in debt is exposing itself to a collapse as well.
Case in point, Stage Stores has recently acquired certain assets of Gordmans Stores through a bankruptcy auction. Under the terms of the transaction, the Stage subsidiary will acquire a minimum of 50 Gordmans store leases, with rights to assume leases for an additional seven stores and a distribution center; all of Gordmans’ inventory, furniture, fixtures, equipment and other assets at the 57 store locations; and the trademarks and other intellectual property of Gordmans.
Stage intends to fund the transaction and related investments from existing cash and availability under its credit facility. The transaction is expected to close during Stage’s first quarter of fiscal 2017, subject to the approval of the court administering the Gordmans bankruptcy and customary closing conditions.
Stage has a little over $13 million in cash, but a whopping $163.7 million in debt. What Stage should be doing is tightening its belt and paying down its debt now that the interest on that debt is rising. Instead, Stage was tempted by the bankruptcy of Gordmans to spend money acquiring assets to try and turn around its own business. It’s sort of like a desperate attempt to stem one’s own losses by acquiring assets that led to the demise of another company. If the assets for sale were that good, Gordmans wouldn’t have gone into bankruptcy in the first place but Stage is desperate and chasing yield and so they threw sound financial decisions to the wind IMO.
This situation with Stage is playing out over and over again. We are only three months into 2017 and already nine major retail brands have filed for bankruptcy: Gordmans, hhgregg, RadioShack, Gander Mountain, BCBG Max Azria, MC Sports, Eastern Outfitters, Wet Seal, and The Limited. At this rate, the industry is on pace to surpass the high of 18 major retail bankruptcies set in 2009 during the last recession.
Rumors are circulating that Payless and Bebe are both close to filing for bankruptcy too.
Folks this is how the retail collapse spreads outward. It wouldn’t surprise me to one day see Stage assets being sold off in a bankruptcy auction. BUYER BEWARE!