Prediction of Retail Chain Failure: Examples of Recent US Retail Failures

Abstract

Over the last several years, several prominent brick-and-mortar retail chains have ceased operations, raising concerns that some have referred to as the retail apocalypse. Scholars have attempted to model the likelihood of firm failure using various approaches. This study examines the failures of Bed Bath and Beyond, J.C. Penney, Rite Aid, and Sears Holdings in the United States between 2013 and 2022. Retail failure models that consider internal and external firm factors using both annual reports and macroeconomic data were analyzed and evaluated using logistic regression, PCA, and Random Forest approaches. The findings suggest that EBITDA/Revenue and annual average US inflation rates are strong predictors of retail failure across various modeling approaches. The modeling results provide an early warning signal at least 1–2 years before failure, with accuracies of 93.8%–96.9%.