Consumer buying habits have been slowly shifting entering the 20’s and although this phenomenon is largely known as the "retail apocalypse" and blamed on the increasing prevalence of online shopping, it's really a much bigger issue. Many major retailers have been able to change along with their customers through desirable product innovations, successful cross-selling, physical store remodels, expansions, inventory management, renewed e-commerce websites, sizable advertising budgets, etc.?
Others have been laggards to change, and instead, are experienced declining market share and ever-increasing debt to fund their operations. ?These firms were able to limp along as they dragged out the pain by taking restructuring measures like closing stores and cutting costs as well as loading up on cheap capital to preserve runway.
It's not only public retailers that are seeking out bankruptcy court protection. The same long-term secular and short-term COVID-19 related issues are present in the private space as well. CreditRiskMontior's PAYCE? score is specifically designed to highlight bankruptcy risk for private companies. The PAYCE? score leverages information such as payment histories and U.S. federal tax liens to achieve a 70+% accuracy rate. However, the PAYCE? score is not a standard linear payment-based credit model like D&B’s PAYDEX? score. Instead, the model uses deep neural network modeling technology, a type of artificial intelligence, which identifies high-risk patterns in payment trends several quarters before severe delinquency becomes detectable.?
The PAYCE? score bankruptcy probability chart is shown below:
One notable private retailer that tumbled into bankruptcy on Aug. 2 was Lord & Taylor LLC. The company was sold to Le Tote, Inc. in late 2019, with the high-end apparel rental company hoping to use the iconic Lord & Taylor name, and its physical locations, to expand its reach. COVID-19 quickly upended this plan and Le Tote's Lord & Taylor subsidiary has been in the bottom half of the PAYCE? score for all of 2020, falling from a "3" in January to a worst possible "1" by May. That drop coincided directly with the impact of the fast-spreading coronavirus, but gave ample time for credit professionals to take protective actions ahead of the private company's bankruptcy filing.
Brooks Brothers is another private retailer with an iconic name that was forced into bankruptcy court. The?company filed on July 8. Long known for providing suits to businessmen, the move toward more casual work attire had left the company out of step with the times. Brooks Brothers PAYCE? score had been trending between "4" and "5" before COVID-19, so it was already on watch lists as a heightened bankruptcy risk. However, when huge numbers of employees started working from home, and thus not wearing suits, the retailer's PAYCE? score dropped all the way to a "1" in May.
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At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK??score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK??score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends.?CreditRiskMonitor’s network of trade contributors provides more than $2 trillion on their counterparties every year, giving them visibility into their biggest dollar risks.?