"Some companies [like Century 21] have failed this year, but that isnt the entire story. What we ... [+] have seen is a tremendous amount of business degradation," says James Gellert, RapidRatings..(Photo by John Nacion/SOPA Images/LightRocket via Getty Images)

Following the 2008/2009 recession, major retail bankruptcies reached historic highs in 2010, setting the record with 48 filings. Through September this year, we are still 16 filings short of matching that record, after some 32 retailers have filed to date.

BDOs David Berliner, who leads the firms business restructuring and turnaround practice, predicts the 2010 record may stand, since there is a seasonality to bankruptcy filings.

If you dont file by Labor Day, you cant do your going-out-of-business sales before Christmas, which typically takes 90 days, he says. Its October now and I think a lot of on-the-edge retailers are saying, Lets get one more holiday season under our belt. Maybe we can get a good holiday somehow.

That is looking less and less likely with Covid-19, not to mention the predictable flu season. The election could throw the economy and consumers into a tizzy, especially if it is contested as in 2000.

Unemployment and financial uncertainty are still holding back many American consumers from spending and there is no stimulus money coming to tied them over. And for retailers in major cities like New York and Los Angeles, tourist spending is nowhere to be found.

Add to those headwinds, many retailers, especially mall-based retailers in the fashion sector, are entering the holiday season short on inventory from orders canceled in the spring. Further, what they have on hand may not appeal to consumers who may have permanently retired their business wardrobes in favor of casual, comfortable styles.

It all adds up to a toxic mix that may leave many retailers underwater with only one way out in 2021: bankruptcy.

Even if retailers have a strong November and December, the true results arent in until the dust settles in January when all the returns are back, Berliner says. By then, a bunch of retailers are going to realize they dont have the liquidity to make it through the rest of the year.

So far this year, the retailers that have fallen include some big legacy brands, like Neiman Marcus, J.C. Penney, Lord & Taylor and Brooks Brothers. BDOs mid-year Retail in the Red report gives the details. Add to that list recent filings by ItSugar with 100 stores and Century 21 with 13 stores.

In addition, these retailers didnt make BDOs list but filed for bankruptcy protection as well, including G-Star-Raw, closing most of its 30 luxury denim stores; Centric Brands, a fashion clothing and brand licensing company with also owns Swims and Zac Posen brands; Canadian Aldo shoe stores with over 400 locations in the U.S.; Roots USA , the U.S. arm of the Canadian outdoor apparel retailer with 7 locations; and DTC Bluestem Brands, including Fingerhut and Haband.

Some of these troubled retailers have emerged, notably Neiman Marcus and J.C. Penney; some have been acquired, like Brooks Brothers, Lucky Brand and Sur La Table; and others have closed for good, like Stein Mart SMRT , Century 21 and Art Van Furniture.

Fashion apparel and department stores took the worst hit this year. When you look at the numbers, those types of stores accounted for over 50% of the bankruptcy store closings, and almost 60% of the non-bankruptcy store closings as well, Berliner says.

On the plus side, those retailers that may have dodged the bankruptcy bullet this year enter 2020 fourth quarter with less competition. But on the other hand, the remaining retailers may suffer less seasonal foot traffic from consumers fear of contagion. Those in malls are the most at risk, since shoppers will have fewer reasons to venture out as mall anchors abandon ship and in-line vacancies grow.

Looking over the horizon for what 2021 may bring is RapidRatings, which assesses the financial health of companies using a stress test model. Two scores are calculated: a companys short-term resiliency and liquidity through a Financial Health Rating (FHR) and mid-term risk and efficiency in a Core Health Score (CHS).

Taking the FHR and CHS scores together, CEO James Gellert says, They indicate whats happening to the company from an efficiency perspective and how that correlates to short-term risk. Its a more complex story thats not often discussed.

The predictive power of RapidRatings model was proven earlier this year when Neiman Marcus, Pier 1, J.C. Penney, Tailored Brands, Ascena Retail Group and Tuesday Morning topped its list of high-risk candidates. Gellert notes that over the past 20 years, over 90% of companies that defaulted across all sectors have been classified as high risk with an FHR score under 40.

When a companys FHR falls under 40, its a measure of extremely weak financial health, similar to blood pressure and blood sugar levels that measure peoples overall health. Healthy companies like healthy people with no underlying weaknesses are better able to fight off shocks to the system, like this pandemic.

Across the board, retailers have faced tremendous disruptions to business in 2020. Going into 2021, they are already in a weakened state. Hearkening back to the last major shock retailers faced, the Great Recession that ended June of 2009, the retailer fallout didnt peak the year of, but the year after, in 2010.

History may repeat itself in 2021. Here, according to RapidRatings stress-test measures are the most at-risk public retailers for future bankruptcy filings, along with those at medium risk:

As in 2020, prospects are poor for many fashion retailers in 2021. Topping RapidRatings list of most at-risk fashion retailers are:

Included in its medium-risk category are Chicos, Burlington Stores, Urban Outfitters URBN , Gap GPS , American Eagle Outfiters, Abercrombie & Fitch ANF and Zumiez ZUMZ .

On the other hand, Foot Locker FL , TJX Companies TJX and Ross Stores ROST are going into 2021 strong.

Macys M tops RapidRatings list of highest risk to fold, followed by Nordstrom JWN . Kohls KSS and Dillards are ranked as medium risk.

Sears is and remains high risk too.

While BDOs Berliner believes home furnishings stores may get a reprieve in 2021 due to consumers shift to spending on home improvements and redecorating, RapidRatings sees weakness in At Home Group HOME and Wayfair that puts them in the high risk group.

Bed Bath & Beyond BBBY and Lumber Liquidators Holdings LL have a medium risk of folding.

Williams Sonoma WSM , Lowes LOW and Home Depot HD remain strong.

Shutterfly, iMedia Brands IMBI , Overstock.com OSTK and Farfetch are holding on by a thread, as they all are rated high risk. The RealReal is rated medium risk.

By contrast, Etsy and 1-800-Flowers FLWS are at low risk, not to mention the all-powerful Amazon AMZN .

Albertsons is the only grocery store that gets a very high risk of default by RapidRatingss measures.

On the other hand, Publix Super Markets is low risk.

High-risk retailers in the specialty category include:

Medium-risk specialty retailers include Sally Beauty Holdings SBH , Dicks Sporting Goods DKS and Hibbett Sport HIBB s.

Within this category, Five Below FIVE and Tractor Supply TSCO are going into 2021 strong.

Making it through 2021 will be the real test of retailers resiliency. On the horizon, BDOs Berliner sees a future of fewer and smaller stores where operational costs can be better managed.

Retailers realize they dont need all those big stores now that consumers have been forced by the pandemic to buy just about everything online and have discovered they like it, he says.

He also foresees retailers making better use of their inventory and omnichannel capabilities so that every store doesnt need to stock every product, but can rely on overnight shipping to get the customers exactly what they want in cases where the size, color or model are not in the store. Buy-online-pickup-in-store and curbside pickup are also services that more retailers will need to offer.

RapidRatings Gellert is quick to point out that the retailers that are going into 2021 with the weakest financial position arent all going to go bust, but they need to rapidly make adjustments to their operating structure to stay financially viable through next year.

Some companies have failed this year, but that isnt the entire story, he concludes. What we have seen is a tremendous amount of business degradation. The question for a lot of companies is how can they move forward operating a strong business and what adjustments do they need to make in the long term to stay afloat.

The rest is here:

Retail Bankruptcies Could Go From Bad To Worse In 2021 - Forbes