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2020 Distressed Industry Outlook

On Behalf of | Jan 6, 2020 | Bankruptcy, Business, Debt, Firm News

What the Retail, Trucking, Oil and Gas Industries Face Going Into a New Decade

By: Dean A. Langdon

The pundits tell us that the economy is doing very well, and by some measures, that’s true. But there are always industries in our economy that are undergoing financial distress, and the outlook for 2020 is no different.  In fact, some of the financial distress will probably be a carryover from industries which saw tough times in 2019.

Retail sales have been at or near the top of the “distressed” list for several years. 2019 was no different with over 9,000 store closings announced from retailers such as Sears, Forever 21 and Payless Shoe Source. Closer to home, regional chain Sleep Outfitters reorganized and closed several stores. There were also many more retailers in distress in 2019.

So shouldn’t 2020 be better for retailers? Not necessarily. Sometimes, tough times multiply instead of improving. Moody’s Investor Service rates the credit of companies, and there are 17 which are currently listed as “risky” for lenders. Their list includes notables such as JC Penney,  Rite Aid, and Pier 1 and more.

A side effect that doesn’t affect consumers as directly is the impact of store closings and struggling tenants on the landlords that own and operate retail malls.  Many landlords will renegotiate lease terms to keep a store in place, but it’s not hard to find empty retail spaces at almost any mall. Landlords have mortgage payments, too, and lowering rent or having too many empty stores can put them in distress. Of course, there’s always someone who finds humor in the situation.

Trucking Industry

2019 was also tough on the trucking industry. According to analytics firm Broughton Capital, 310 trucking companies failed in 2018, pulling 2,800 trucks off the road. In the first 3 quarters of 2019, 795 companies failed, pulling almost 24,000 trucks off the road. Trucks deliver around 70% of the goods manufactured in America, but manufacturing is currently in a decline. Unless that decline stabilizes (or better yet, reverses), trucking will continue to face difficult times. Fleet operators have reduced their orders for new equipment, especially long-term orders. In addition, predictions of an economic contraction for 2020 are easy to find, and a further decline in manufacturing would put even more pressure on the trucking industry. Finally, labor and insurance costs continue to increase for the industry. For a deeper dive, see this article.

Oil and Gas Industries

Finally, the oil and gas industry hit another rough patch in 2019, with 50 energy company bankruptcy filings in the first 3 quarters of 2019, compared with 43 in all of 2018. Predictions for 2020 include continued overcapacity, tightening credit, and continued growth in the non-fossil fuel market. It appears that Wall Street has changed its focus on the industry from funding expansion after the last downturn to looking for a return on investment to shareholders. Perhaps a slowdown in growth will help reduce the overcapacity and boost prices, but whether that happens soon enough to avoid company closures and bankruptcies is an open question. Expect some bankruptcies and mergers in 2020 as this industry continues to deal with a variety of global factors. Additional insights available here and here.

About DelCotto Law Group

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