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December retail market: 2017 bankruptcies now outpace 2016

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December retail market: 2017 bankruptcies now outpace 2016

Although the tally of bankruptcies in 2017 hit a six-year high in the last month, the first half of the holiday shopping season saw positive trends in both employment and sales, according to a new analysis by S&P Global Market Intelligence.

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As of a Dec. 14 count, retail bankruptcies in 2017 now outnumber those in 2016. To date, 50 retailers filed for bankruptcy protection in 2017, compared to 47 in all of 2016. The year-to-date figure for 2017 comes in higher than any year in S&P Global Market Intelligence's analysis since 2011. The analysis includes S&P Capital IQ-covered U.S. consumer discretionary retailing companies that announced a bankruptcy between Jan. 1, 2010, and Dec. 14, 2017.

Most recently, Charming Charlie Holdings Inc., a mall-based accessories chain, filed for bankruptcy protection Dec. 11, the latest in a string of mall-based retailers, including The Wet Seal LLC and The Gymboree Corp., to file for bankruptcy protection in 2017. In late November, bankruptcy filings included Shiekh Shoes LLC, a footwear company, and Maurice Sporting Goods Inc. a wholesale sporting goods chain.

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Sears Holdings Corp. continued in its No. 2 spot on the list of the most vulnerable U.S. department stores and apparel companies, according to an analysis calculating the one-year probability of default among S&P Capital IQ publicly traded and covered U.S. apparel and retail companies and department stores. Mall-based retailer Bebe Stores Inc. also retained its high spot on the list.

The probability of default among these companies ranged from 44.38% and 5.36% with a corresponding implied credit score of "cc" to "b."

L Brands Inc., with brands including Victoria's Secret and Bath & Body Works, fell off the list of the 15 most vulnerable retailers in December. The company was pushed off by apparel company Razer Inc., which appeared on the list for the first time at the No. 3 slot with a one-year probability of default of 22.86%. L Brands continued to post a one-year probability of default of 5.32%.

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Employment in the retail sector during November shot up by 18,700, or 0.1%, to 15.85 million from October, according to a monthly report released Dec. 8 by the U.S. Bureau of Labor Statistics. In November, e-commerce giants such as Amazon.com and brick-and-mortar retailers such as Target began hiring seasonal workers for the holiday season.

General merchandise stores, a category that includes department stores, added the most at 6,800 jobs, a 0.2% increase from October. Within that figure, department stores added 3,100 jobs. Other general merchandise stores gained 3,800. Clothing and clothing accessories stores, meanwhile, lost the most jobs at 5,600, or a decline of 0.4%, followed by electronics and appliance stores with a loss of 4,500 jobs, a decline of 0.9% from the previous month.

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Retail sales increased a seasonally adjusted 0.8% in November. The month-over-month jump was driven largely by the 2.8% increase in gasoline station sales and a 2.5% increase in nonstore retailers, a category that includes e-commerce.

During Black Friday and Cyber Monday shopping, retailers saw a spike in online shopping, a trend the industry expects to continue throughout this holiday shopping season and going forward. According to Adobe Digital Insights, Black Friday online sales grew 16.9% to $5.03 billion from the same period in 2016, while Cyber Monday online sales increased 16.8% to $6.59 billion.

Motor vehicle and parts dealers was the only category that saw a sales decline during November. The category's sales fell 0.2%.

The Consumer Price Index rose a seasonally adjusted 0.4% in November, according to a monthly report released Dec. 13 by the U.S. Bureau of Labor Statistics. Energy prices jumped 3.9%, contributing to about three-fourths of the overall increase. Gasoline, a measure within the overall energy category, saw prices increase 7.3%.

Core consumer prices, a measure that excludes food and energy, ticked up 0.1%. That figure was driven by a 1% increase in used cars and trucks prices. Apparel experienced the greatest price decrease during November of 1.3%.

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S&P Global's Fundamental Probability of Default Model provides a fundamentals-based view of credit risk for corporations by assessing both business risk — including country risk, industry risk, macroeconomic risk, company competitiveness and company management — as well as financial risk, such as liquidity, profitability, efficiency, debt service capacity and leverage. For a more thorough review of the model, refer to the PD Model Fundamentals - Public Corporates whitepaper.