Industries to Watch: Retail, Coal

Long before Black Friday drew disappointing results, Industries to Watch warned that retail was in the midst of an uphill financial battle. Bruce Nathan, Esq., partner with Lowenstein Sandler LLP, called it quite possibly the biggest industry of concern regarding insolvency, especially for those late to the e-commerce party. Now, clothier Loehmann’s has become an unfortunate example of this very situation as it will shut its doors due to its Chapter 11 bankruptcy filing this week.

The filing was the company’s third, and an auction of assets is tentatively slated for December 30. Loehmann’s last reorganized a little more than three years ago. The near 100-year-old company never found its footing in an increasingly online-driven clothing marketplace, partially because it was among others “playing from behind,” those that waited too long to address the changing marketplace.

While Loehmann’s had its issues for many years, don’t expect this to be the last retail bankruptcy, especially in clothing. A number of issues continue to dog the sector, like a slow e-commerce response and over-leveraged financials. “The bottom line is you are going to see a shakeout in the retail area in the next few years,” Nathan said.

Another distressed industry, as Industries to Watch noted in September, is coal -- that was brought back to the headlines this week as a U.S. Bankruptcy Court judge approved the restructuring plan of one of the industry’s key players, Patriot Coal Corp. While there is much talk of a clean slate and a newfound liquidity infusion from the likes of Deutsche Bank and Barclays, concerns about Patriot’s business and that of competitors lingers.

Competition from natural gas presents “a permanent concern for the industry and a real obstacle,” said Adam Rosen, director of PricewaterhouseCoopers LLP’s financial restructuring group, in September. Little has changed since. In addition, there is the ever-present threat of mine closures and costly renovation mandates stemming from escalating federal regulatory efforts to address safety or environmental concerns.

“You’ve seen producers publicly say they think the worst is behind them, but they’re not overly bullish in the near term,” Rosen said. He added that deep struggles should be expected for at least another year. Those without solid cash standings to weather that storm are likely to face a solvency crisis.

“The sentiment is it will not be a fast recovery…but recovery is expected,” Rosen noted. Perhaps more than any other in that industry, the next several months of activity out of Patriot warrants close monitoring for anyone providing credit terms to the company or those downstream.

- Brian Shappell, CBA, CICP, NACM staff writer

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