Fashion Retail Sees Risk of Default Abate
What a relief.
Fashion retailers are now just in the middle-of-the-pack when it comes to default risk for all U.S. retail sectors.
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The S&P Global Market Intelligence report showed that the median default risk for all retail sectors—the chance of default over the next year through Feb. 14—was 2.3 percent, down slightly from 2.5 percent last month.
Apparel retailers were at 3 percent, down from 3.3 percent the prior month. Broadline retailers were below the median at 2.6 percent, down significantly from 3.7 percent in January. Near the bottom of the list were apparel, accessories and luxury goods retailers at 1.3 percent, inching down from 1.5 percent. Footwear retailers essentially held steady at 1.2 percent, just slightly better than January’s 1.3 percent.
Fashion retailers are largely doing better than other specialty retail categories—such as florists, used merchandise stores and pet supply retailers—which posted a median default risk of 3.6 percent, down slightly from 3.9 percent.
Retailers are doing better now than in October 2021 when many were struggling with supply chain issues and navigating the post-COVID landscape. Back then, the default rate for apparel retailers rose to 6.7 percent from 5.7 percent in the prior month. Footwear retailers seem the most stable category listed over the years. It had a 0.3 percent chance of default in 2021, and even now at 1.2 percent remains fairly low risk. Department store retailers with their 2.6 percent risk score saw improvement over the years versus its 4.3 percent chance of default back in 2021.
But some things haven’t changed. The S&P Global report didn’t list the names of retailers on its watch list. However, Express Inc. is high on the watch list among some credit analysts. And back in September 2021, the S&P Global’s watch list did include Express, noting that it had a 24.3 percent chance of defaulting within a year and ranking it the highest among apparel retailers. Express managed to buy itself some extra time in December 2022 when it inked a $400 million licensing deal with brand management firm WHP Global.
Home furnishing retailers, which saw a wave of bankruptcy filings in 2023, saw its median default risk dip to 2.3 percent from 2.8 percent. And among the 15 primary retail categories, drug retailers now have the largest default risk at 6.9 percent, up from 6.6 percent last month. Second were household appliance retailers, shooting up to 5.1 percent from 2.5 percent in January, and rounding out the top three were personal care products at 4.1 percent, up from 5.1 percent.
Only two apparel firms thus far filed for Chapter 11 protection, medical apparel manufacturer Careismatic Brands LLC on Jan. 22 and Anne Fontaine USA Inc. on Jan 16.
