The list of troubled retailers seems to be getting longer by the day.

This week, Moody's Investors Service said nearly 14% of its retail and apparel portfolio is now comprised of distressed issuers, which is the largest number since the Great Recession. The 19 names in Moody's portfolio have well over $3.7 billion in debt maturing over the next five years, with some 30% of that coming due by the end of 2018.

Meanwhile, S&P Global Ratings recently downgraded four retailers: department store operator Macy's (M) , luxury retailer Neiman Marcus, young-women's fashion chain Charlotte Russe and thrift store operator Evergreen AcqCo1.

Macy's was cut to BBB- from BBB last week, which is one level above junk bonds. The ratings change comes after the company reported weak fourth-quarter results, partially due to soft holiday sales.

"The downgrade reflects our view of the company's weakened operating performance and competitive standing given the ongoing industry challenges, such as sustained low-customer traffic, increased price transparency and unrelenting competition from online, fast-fashion and off-price retailers," credit analyst Helena Song said.

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Fast fashion, from retailers such as H&M, Topshop and Zara, has disrupted the historical supply chain model as it emphasizes getting new trends out into the market quickly and cheaply.

"Fast-fashion retailers have thus been able to flood the market with new, inexpensive styles and have been able to react quicker to changes in consumer preferences," Credit Suisse analysts said in a recent note.

"Zara is the star," said Cori Lopez-Castro, partner at Kozyak Tropin & Throckmorton. The retailer is able to change its merchandise very quickly and customers keep coming back to the store because they know they'll see something new. "No one is going into Macy's to see what's new."

Off-price retailers have also become more popular as consumers seek bargains and forego department stores and malls.

Standard & Poor's also downgraded department store Neiman Marcus to CCC+ from B- with a negative outlook this month. "The company's capital structure is unsustainable over the long term. Trends such as weak mall traffic, highly promotional retail apparel environment and cautious consumer spending continue to weigh heavily on Neiman Marcus' operating performance and EBITDA," Song said.

Mall-based Charlotte Russe is also struggling. S&P lowered Charlotte Russe's rating to CCC+ from B- with a negative outlook earlier this month. "The company's suppressed debt trading prices and lack of prospects for a strong, sustained rebound could lead the company to pursue a potential debt restructuring," said credit analyst Andrew Bove. "The apparel industry will only be more challenged over the next 12 months to 24 months."

Macy's continues to close stores to save money

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Teen retailers have especially struggled as evidenced by a string of Chapter 11 bankruptcy protection filings from companies such as American Apparel, Aeropostale, Wetseal, Quicksilver and PacSun.

"Kids moved away from those brands. It wasn't popular on social media," Lopez-Castro said, adding that the aforementioned companies also didn't have a strong e-commerce presence.

The teen market is extremely competitive, highly cyclical and very trend-driven. "If you lose your touch, your shoppers can desert you instantaneously," said Stephen Selbst, the chair of the bankruptcy group at Herrick Feinstein.

Weakness in the retail sector is also being caused by stagnant consumer incomes, changing consumption patterns and the growth of e-commerce, according to Selbst.

The core shopper of big department stores such as Macy's and J.C. Penney (JCP) are middle-class women, and middle-class incomes have been stagnant for a generation, he said.

Clothing purchases made up between 5% and 6% of consumer expenditure a generation ago vs. only 3.5% before the Great Recession. That decline is continuing, according to data from the Bureau of Labor Statistics, which showed that aggregate household spending on clothing has dropped almost 10% since 2005.

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"There aren't more dollars to go around," Selbst said, but noted that the upper strata of the American consumer population is not being squeezed.

While retailers in the past have blamed sluggish results on a bad holiday season or unfavorable weather, he believes they are missing the bigger picture. "Consumption patterns are changing," Selbst said.

The rise of Amazon  (AMZN) and Walmart's (WMT) Jet.com have accelerated the shift to shopping online. "The whole shopping experience has been radically changed," he said.

As for the outlook of this year? Added Lopez-Castro, "2017 will be the year of retail bankruptcies." 

Editor's Pick: originally published March 1.

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