The pressures from high rent and on-line competition that drove retailers Sports Authority Inc. and Golfsmith International Holdings Inc. into bankruptcy in 2016 won't ease in 2017 and may spread to businesses such as wholesalers and real estate companies, threatening corporations like Costco Wholesale Corp. (COST) and the already-affected DirectBuy Inc., bankruptcy experts said.
Traditional brick-and-mortar retailers have been struggling to keep up with rising rents and wages as well as a changing consumer, who is increasingly choosing to shop online.
In 2017 and beyond, New Jersey attorney Stuart Komrower of Cole Schotz PC said he predicts "big box retail discounters" are the next "on the firing line."
Wholesalers such as Costco and DirectBuy are profitable in a strong buying economy but may start to lose their purchasing power, the amount of goods that can be bought for a certain amount of money, Komrower said.
A key indicator of purchasing power is inflation. If the rate of inflation is high, it is harder for wholesalers to purchase products in bulk for a cheap cost. The inflation rate on U.S. consumer prices increased slightly to 1.6% in October from 1.5% in September, according to the U.S. Bureau of Labor Statistics.
If wholesalers keep losing purchasing power, Komrower said they will eventually have to downsize and "maybe, most importantly, develop a complimentary brand that is sold online."
Operator of members-only online buying clubs DirectBuy has already been affected. The company filed for Chapter 11 on Nov. 1 to attempt to restructure about $154 million in senior secured debt. DirectBuy did not cite in court papers what led it to accrue its debt.