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In a presentation at ICR Monday, Fitch Ratings Senior Director David Silverman emphasized a “widening gulf” between successful and challenged retailers in recent years and said the trend is likely to continue into 2023. Retailers with the ability to invest in their businesses have continued to surge far beyond their more challenged peers.

Starting in 2022, Fitch observed demand declines and more consumer “choicefullness” as shoppers consider private labels instead of national brands and otherwise make decisions to protect their cash in an inflationary environment. Retailers like Walmart are experiencing trade-down from higher-income customers that usually wouldn’t shop with them, Silverman said, although the growth of deep discounters and dollar stores means the big-box player may not be the lowest price anymore.

Retail categories that could struggle the most over the next few years include some of the pandemic’s main winners, including home improvement and home furnishings, as demand has cooled for those sectors. Luxury, on the other hand, seems to be “quite strong,” Silverman said.

While default rates are predicted to be relatively low this year and have been low over the past few years after a “clear the decks” bankruptcy situation in 2020 (Retail Dive tracked 30 major bankruptcies that year), Silverman identified a few major retailers that are on watch this year, namely, Bed Bath & Beyond, Party City and Rite Aid.

Bed Bath & Beyond last week issued a going concern warning suggesting it could file for bankruptcy, while Party City is rumored to be considering a filing as well. Rite Aid on Monday replaced CEO Heyward Donigan, effective immediately, tapping Elizabeth Burr to take over in the interim as it searches for a permanent leader.

Other retailers could be more lucky, as many used the chaos of 2020 to refinance.

“In terms of the default rate, it’s actually been quite low in retail over the last couple of years,” Silverman said, noting that part of that is because of the sheer number of bankruptcies in 2020. “The bankruptcies that we saw throughout 2020 could have been candidates for bankruptcies over the next few years. Those are the names that we could have otherwise been talking about today. We also saw a lot of companies in 2020 and in 2021 proactively refinance their balance sheet, which has pushed out maturities that otherwise we would be talking about today.”