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Toys ‘R’ Us Ex-Exec Warns of Retail Bankruptcies – Is Now Time to Reconsider Investments?

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If it didn’t kill them, the pandemic tested the mettle of retail companies of all sizes and ensured an uncertain future for all. The current economic outlook has prompted one former retail CEO to declare, “We’re going to see record bankruptcies in retail.”

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Speaking to Fox Business’ “Cavuto: Coast to Coast” last week, former Toys ‘R’ Us CEO Gerald Storch predicted gloom and doom ahead for not only mom-and-pop stores this fall into the Christmas holidays, per the New York Post.

“Those chains that have been struggling for years strategically and never got it right” are also “going to have big problems as we round the bend here after the holidays,” stated Storch. 

Oddly, sales for luxury items at higher-end stores haven’t been as profoundly affected by the pandemic and the current decades-high inflation.

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“Usually when the stock market pulls back, luxury sales do too,” Storch pointed out. “That hasn’t happened yet, but we fully expect it to happen.” 

This consumer anomaly was echoed by Neiman Marcus Group Chief Executive Officer Geoffroy van Raemdonck, who also guested on “Cavuto” recently. The CEO noted that, despite prevailing economic unpredictability and towering inflation rates, growth at Neiman Marcus was healthy and sales have not been adversely affected.  

Speaking to Yahoo Finance Live, Mark Cohen, former CEO of Sears Canada and current Columbia University professor of retail studies said, “There is no question as business becomes tougher to manage, weak players fall by the wayside,” adding, “They are particularly vulnerable to inflationary pricing and inflationary costs.”

With markets volatile and consumer confidence ailing, investors would have every right to be confused about what to do with stock held in potentially troubled retail companies. Now is the time to reconsider your retail investments. Decreased sales and stock prices and estimated earnings for most retail companies haven’t increased brand faith in stockholders.

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At the beginning of the pandemic, keeping shares in retail stores that provided necessary household items and abandoning those who dealt in discretionary products was a no-brainer. However, during this current crisis, it is difficult to figure out exactly who the winners will be.

There is also the problem of when this supposed flurry of retail firms falling by the wayside will happen and if it happens at all. For retail doomsayers, future retail viability relies on a weak or robust Christmas shopping period, per Yahoo Finance. And as the stats show, fewer and fewer companies have been declaring insolvency over the past year or so.

As Chain Store Age reported back in April, according to a biannual BDO report on retail bankruptcies and store closings, there were 20 retail bankruptcies in the second half of 2020 but only three in the same period in 2021. The report announced no new retail bankruptcies from mid-September 2021 through mid-February 2022.

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However, that hasn’t stopped retail vets like Storch and Cohen from prognosticating potentially troubling times for retail firms, big and small.

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“I think we will see a flurry of bankruptcies likely in the first quarter of 2023 if this holiday season is anything less than completely robust,” predicted Cohen, before adding, “I don’t think it will be, by the way.”

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