No New Year's Relief for Retail. Now It's Peak Bankruptcy Season

(Bloomberg) -- The holiday season is officially over, but for some retailers the moment of truth is drawing near.

January is the busiest month for retailers to file for bankruptcy, according to data compiled by Bloomberg Intelligence dating back to 1981. The trend has been holding strong ever since the days of Federated Department Stores and Best Products Co., which both used the first month of the year in the early 1990s to file for Chapter 11 protection.

A January spike in new bankruptcies would follow a year in which retailers went bankrupt at a faster pace than during the Great Recession.

The end-of-year shopping rush is crucial for retailers, who often log their largest profits in the fourth quarter. If an already struggling chain misses seasonal targets, there’s no easy catching up. That’s why purveyors of the apparel and specialty items are counting their holiday spoils with bated breath, knowing the results of the past several weeks could make or break them.

Another part of the appeal of January filings is that retailers are cash-rich, relatively speaking, at the start of a new year, said Bloomberg Intelligence analyst Noel Hebert, who compiled the data. That bit of extra cash on hand can make the bitter pill of bankruptcy a little easier to swallow.

“The last quarter often accounts for up to 70%-100% of retailers’ free cash flow for the year due to inventory wind-down and the added profit dollars given higher sales,” he said.

To contact the reporter on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net.

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Nikolaj Gammeltoft, Shannon D. Harrington

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