Brick-and-mortar retail's a tough business. Although threatened by e-commerce, the industry has many more issues to deal with. Many of the big ones have been addicted to markdowns that lead to brand and financial erosion.

Industry cracks from the pressures are showing. "Retail Zombies Haunt Industry" is the headline that the Wall Street Journal's Heard on the Street just ran. Apparently a significant number of chain retailers are in big financial trouble:

More retailers are teetering on the edge of bankruptcy than at any point since the recession. Moody's rates the debt of 19 retailers, or 13.5% of the retailers it covers, as "speculative, of poor standing and subject to very high credit risk" or worse. That is up from only 5.6%

The list of names includes the following:

  • Sears Holding (Sears and Kmart)
  • Fairway Group Stores (gourmet and specialty foods)
  • Bon-Ton Stores (department store chain)
  • David's Bridal
  • TOMS Shoes (a for-profit that does charity work)
  • True Religion Apparel (clothing)
  • Nine West Holdings (clothing, shoes, and accessories)
  • Payless ShoeSource
  • Gymboree (children's clothing)
  • Claire's Stores (accessories and jewelry for girls and younger women)
  • Chinos Intermediate Holdings (J. Crew parent)

Given the talk of replacing the tax on exports with one on imports would only drive up the problems the chains face, as their cost of goods would jump significantly. (Import tariffs are paid by the importer, not the foreign exporter.) Although the retailers have been negotiating with bond holders, who have accepted significant discounts and offered longer terms, the basic financials are enough for Moody's to rate 13.5 percent of the retailers it follows as a Ca or Caa credit risk.

That's the bad news. But there's good news for small businesses and entrepreneurs. Not that life is suddenly easier, but a lot of major competitors in some popular retail areas are in trouble. Even if investors keep them afloat in an attempt to avoid total losses, the chains are significantly weakened, with less money for inventory, staff, and marketing.

If you're in retail, whether with physical locations, ecommerce presence, or a combination of the two, their bad news is your good. Here are some things you can do to take advantage of the opportunity.

  • Buy and sell American. Given the current political climate, many parts of the country have an interest in supporting domestic producers. Find U.S. sources of goods and promote that you do so. Have special tags, whether physical on goods or icons on a website.
  • Buy and sell targeted imports. Other parts of the country may be focused on supporting relations with other nations. If you serve such an area, then look at what you can bring in and market right next to the US products.
  • Provide service. What's service like in a chain store? Think about your own experiences in them. Tough to find help. Companies hurting financially will cut down on staff. That leaves an opening for a higher touch approach to consumers. Cater to them, whether in person or online.
  • Avoid continuing heavy discounts. The discounting is one of the things that has put companies in trouble. Instead, focus on knowing your customers and tailoring product selections to them, arrange promotions to match demand to existing inventory, and work on demand forecasting.
  • Look for niches that may be underserved. If you're in a major metropolitan area, then there may be a large enough population that niche markets will be large enough to sustain the business. (Plus, there's always the online/brick-and-mortar combination.) Avoid this strategy in smaller areas. That should go without saying, but I have often seen people trying to keep an overly specialized concern going where there isn't a large enough audience to provide the necessary customer flow.
Published on: Feb 16, 2017