The retail industry continues to face challenges as small businesses file for bankruptcy at an alarming rate. In the first half of 2024, small business bankruptcy filings increased by 61 percent compared to the same period the previous year. One notable example is apparel retailer Bob’s Stores, which recently announced the closure of all its stores nationwide. The company cited difficulty in maintaining operations after its primary lender, PNC Bank, stopped funding the firm.
Bob’s Stores will be closing 21 outlets across several states, including Connecticut, Massachusetts, New Hampshire, New Jersey, New York state, and Rhode Island. The company made a Chapter 11 bankruptcy filing on June 18, seeking to reorganize its business and pay off creditors over time. This type of bankruptcy allows the company to continue operating and even borrow money with court approval.
The decision to file for bankruptcy was prompted by PNC Bank declaring a default in payments on March 29. Despite negotiations, PNC ultimately ceased funding the company on June 12. As a result, Bob’s Stores and its associate brand Eastern Mountain Sports determined that Chapter 11 bankruptcy was necessary to address their liquidity crisis.
In addition to their debt to PNC Bank, Bob’s Stores and Eastern Mountain Sports owe more than $26 million to trade creditors, landlords, and outstanding operating debts. To address their financial position, Bob’s Stores began Going Out of Business sales on June 28, offering discounts of 30-70% off. The company clarified that all sales made during the liquidation process would be final and no returns would be accepted. However, gift cards and merchandise credits would still be accepted until July 14, and exchanges would also be permitted until this date.
The increase in small business bankruptcies reflects the growing economic strain on businesses and households. According to data from Epiq AACER, there were 3,016 commercial Chapter 11 bankruptcies filed in the first half of 2024, a 34 percent increase from the same period last year. The American Bankruptcy Institute (ABI) highlights the need for efforts on Capitol Hill to reinstate higher debt-eligibility limits for small businesses and create a more efficient process for achieving a financial fresh start.
While the rise in bankruptcies may raise concerns about the state of the American economy, some experts maintain a positive outlook. Deloitte, in a March report, expressed optimism about the U.S. economy, expecting growth in consumer spending, investment, government spending, and exports. They forecasted real growth of 2.4 percent in 2024 and 1.4 percent in 2025.
Additionally, a June report by the Federal Reserve Bank of New York revealed that U.S. households have become more optimistic about their future financial situation, further indicating positive economic prospects. However, it is essential to note that bankruptcy filings do not solely reflect the overall health of the economy, as they primarily focus on larger companies exceeding certain asset and liability thresholds.
According to S&P Global, there have been 275 corporate bankruptcy filings in the United States until May of this year. While this number is slightly lower than the same period in 2023, it is the second-highest filing number since 2011, highlighting ongoing challenges in various sectors. Some notable bankruptcies involving companies with over $1 billion in liabilities include IT firm Dynata, consumer discretionary company Red Lobster, healthcare business Invitae Corp., and energy firm Enviva.
In conclusion, the rise in small business bankruptcies, exemplified by Bob’s Stores’ closure, underscores the economic strain businesses face. Efforts to support small businesses through higher debt-eligibility limits are crucial for their survival. Despite these challenges, experts maintain a positive outlook for the U.S. economy, citing growth in various sectors. However, it is essential to monitor bankruptcy filings as they can provide insights into specific industries’ struggles and overall economic trends.
