Dwindling Mall Traffic Continues to Plague Retailers

A variety of challenges including online competition, reduced mall traffic and spending shifts to consumer services will continue to constrain the overall performance of many leveraged retailers, despite growth in consumer spending, according to the fifth edition of Fitch Ratings' 'High Yield Retail Checkout' report.

Fitch expects consumer spending will grow 3 percent to 4 percent, in line with the 3 percent expected in 2015. Department stores, which serve as anchor tenants to major regional malls, and categories such as consumer electronics, toys, office supplies, grocery, and, more recently, apparel, are facing the most competition from online retailers and discounters.

E-commerce sales currently account for approximately 14 percent of retail sales but almost 50 percent of retail sales growth. Fitch expects online sales will grow in the low teens over the next couple of years and surpass $300 billion in 2016, while sales excluding online will grow at a modest 1.5 percent-2 percent. An intense promotional environment is therefore a permanent reality as retailers fight for a share of this modest growth.

Issuers with positive trajectory include Burlington Stores, Inc.; J.C. Penney Company Inc.; Kate Spade & Company, and Levi Strauss & Co. These issuers should continue to see growth in both top-line and EBITDA, and see further improvement in their credit metrics over the next 12-24 months.

Issuers with negative trajectory include Sears Holdings Corporation; Claire's Stores, Inc.; Toys 'R' Us, Inc., and 99 Cents Only Stores LLC, which will continue to face significant pressure on their businesses. J.Crew Group, Inc; The Men's Wearhouse, Inc., and Neiman Marcus Group LTD LLC have seen reductions in sales and EBITDA, but liquidity is comfortable in the near term.

Fitch Ratings' 'High Yield Retail Checkout' report provides a comprehensive analysis of the leveraged finance retail sector, including company profiles of the 23 largest high-yield retail and apparel companies. Each profile contains Fitch's assessment of the business and financial profile, and a detailed capital structure, debt organizational chart, and covenant analysis for the following companies:

99 Cents Only Stores LLC

Ascena Retail Group, Inc.

Bon-Ton Stores, Inc. (The)

Burlington Stores, Inc.

Claire's Stores, Inc.

Dollar Tree, Inc.

GNC Holdings Inc.

Gymboree Corporation (The)

Hanesbrands Inc.

J.C. Penney Company, Inc.

J.Crew Group Inc.

Kate Spade & Company

Levi Strauss & Co.

L Brands, Inc.

Men's Wearhouse, Inc. (The)

Michaels Stores, Inc.

NBTY, Inc.

Neiman Marcus Group LTD Inc.

PVH Corp.

Sally Beauty Holdings, Inc.

Sears Holdings Corporation


Toys 'R' Us, Inc.
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