Lessons for Trade Creditors from Recent Bankruptcies
Boost Your Default Signal Intelligence Skills
We can learn a lot from mistakes and failures. This is especially true of our own, but it also applies to other people’s foul-ups and blunders. Experience is a great teacher, and many a success was born out of failure. Edison and the invention of the light bulb is a good example. History, other people’s experinces, is informative as well. As the philosopher George Santayana observed, “Those who cannot remember the past are condemned to repeat it.”
This applies to credit and collections as well as anything else. Collectors are continually learning what works to get people to pay up and what doesn’t. Credit analysts should also review past decisions to improve their future performance regarding approvals, limits and term setting.
Another thing trade creditors can study is companies that have defaulted or filed for bankruptcy. That’s what this article explores. We’re going to look at the situations involving four well known companies that ended up in bankruptcy so we can better understand the circumstances that signal a commercial bankruptcy may be on the horizon.
Blockbuster LLC
Blockbuster was a leading provider of home movie and video game rental services through its chain of retail stores and online platform. The primary reason for Blockbuster's bankruptcy was its failure to adapt to changing consumer preferences and technological advancements, particularly the shift towards online streaming and digital downloads. Despite attempts to compete with emerging competitors like Netflix and Redbox, Blockbuster struggled with declining revenue, mounting debt, and an outdated business model. The company filed for Chapter 11 bankruptcy protection in September 2010 and gradually closed its remaining stores.
Toys "R" Us
Toys "R" Us, a well-known toy and juvenile-products brick and morter retailer, struggled due to a combination of factors, including increased competition from online retailers like Amazon, large debt burdens resulting from a leveraged buyout by private equity firms in 2005, and changing consumer preferences towards online shopping. Despite efforts to restructure its debt and operations, Toys "R" Us ultimately filed for Chapter 11 bankruptcy protection in September 2017. The company later announced the liquidation of its U.S. operations and the closure of its stores in 2018.
Hertz Global Holdings Inc.
The COVID-19 pandemic had a devastating impact on the travel industry, leading to a sharp decline in demand for rental cars. With travel restrictions and lockdowns in place, Hertz experienced a significant drop in revenue. Compounding its drop in sales, Hertz had a large debt burden and faced challenges in refinancing or restructuring its debt obligations. Despite efforts to negotiate with creditors, Hertz filed for Chapter 11 bankruptcy protection in May 2020.
J.Crew Group, Inc.
J.Crew was a popular American retailer specializing in apparel and accessories for men, women, and children. The COVID-19 pandemic exacerbated J.Crew's existing financial challenges, including declining sales, high debt levels resulting from a leveraged buyout, and changing consumer preferences. Facing liquidity constraints and a strained retail environment, J.Crew filed for Chapter 11 bankruptcy protection in May 2020.
Check out these related articles:
Red Flags that Demand Your Attention
Seven Risk Mitigation Techniques for Handling Customers in Financial Distress
Eight Signs Your Customer Is Becoming A Problem Debtor
The ABCs of Credit Evaluations
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