The first quarter of 2026 isn’t just another slow season for retailers-it’s when retail bankruptcy risks become undeniable. I’ve watched this slow-motion collapse from the inside: the late-night calls with suppliers begging for payment extensions, the boardroom debates about whether to shut underperforming stores, and the quiet resignation of mid-level managers who’ve spent years waiting for the other shoe to drop. The difference this time? The system’s not just creaking-it’s fracturing under three forces we can’t outmaneuver: the lingering COVID-era debt, the permanent shift to necessity-driven spending, and the supply chain black holes left by post-pandemic vendor pullbacks. The early warning signs are already flashing in places you might overlook.
Where retail bankruptcy risks hide
Most people point to the obvious: Bed Bath & Beyond’s 2023 collapse or J.C. Penney’s 18% revenue plunge last year. But in my experience, the most vulnerable players aren’t the ones screaming for help-they’re the ones quietly bleeding. Take Ross Dress for Less, for example. This chain has been on life support since the 2008 crash, but its recent bankruptcy filing isn’t about weak sales-it’s about a fundamental miscalculation. Ross bet everything on high-volume, low-margin transactions, assuming shoppers would keep coming even as wages stagnated. They didn’t. What Ross failed to account for was the perfect storm of inflation-driven margin compression and the rising popularity of thrift apps like Poshmark, which now make it easier than ever to find that $15 blazer online for $3.
Here’s the real problem: Ross’s model was built on one assumption-cheap labor would always compensate for everything else. But with labor costs now at 20-year highs, even their aggressive discounting couldn’t stem the tide. The same fate threatens other off-price chains that assumed their business model was recession-proof. The retail bankruptcy risks here aren’t just about bad luck-they’re about execution failures in a system where every margin is being squeezed.
Red flags you’re overlooking
The most at-risk retailers share three traits, but the third one-hidden debt maturity schedules-gets ignored until it’s too late. I’ve seen companies with “healthy” balance sheets suddenly hit a wall when their COVID-era debt comes due at a time when revenue is contracting. Take GNC as a case study. They took on $1.1 billion in debt assuming their digital transformation would pay off. Instead, their online sales plateaued while store-level margins hemorrhaged. The bankruptcy wasn’t inevitable-it was the result of treating debt like a temporary crutch instead of a structural problem.
Teams tracking retail bankruptcy risks should watch for these warning signs:
- Debt covenants being violated-even if they’re quietly extending maturities.
- Vendor relationships collapsing-suppliers cutting credit terms or walking away.
- Management turnover at the C-suite level-especially if it’s accompanied by restructuring PR campaigns.
- Stores operating at 30% capacity but still reporting losses-a sign the business model is broken.
What this means for shoppers and investors
The next wave of retail failures won’t just be bad for the companies involved-they’ll ripple through entire ecosystems. I remember when Cabelas filed in 2022; it didn’t just hurt outdoor enthusiasts. It sent shockwaves through fishing gear manufacturers, land management companies, and even tourism-dependent towns where their stores were economic anchors. For investors, the question isn’t whether to buy-it’s whether to buy the distressed assets or the distressed company. Costco, for instance, has weathered this storm by treating debt like a fortress-not a trophy. Their debt-to-equity ratio has barely budged despite inflation, while competitors are left scrambling.
For shoppers, here’s the practical takeaway: start treating your favorite stores like they’re already in bankruptcy. If you’ve noticed more “out of stock” signs, if your loyalty card hasn’t been accepted at checkout, or if the store’s website keeps redirecting you to a “liquidation” page-those aren’t glitches. They’re signals. The retailers that fail won’t just disappear; they’ll leave gaps that other players will rush to fill, often at your expense. The next chapter of retail bankruptcy risks is already being written in boardrooms where the numbers refuse to add up.
