Dive Brief:

• J.C. Penney is among the latest additions to Fitch Rating's "loans of concern" list, indicating a high risk of default on a $1.6 billion loan balance at the department store retailer, according to an emailed report.
• In adding Penney, the ratings firm noted debt restructuring concerns, which likely intensified with recent reports that the retailer was working with advisers on its debt load. Also added to the list in July were mattress maker Serta Simmons Bedding, online jewelry retailer Blue Nile and cosmetics company Revlon. 
• Retail makes up 18% of Fitch's top loans of concern list — the most of any sector on the list — and 22% of the agency's second-tier list. Also included on the top loans of concern list (added prior to July) are J. Crew, Toms Shoes, Indra Holdings (which owns the Totes and Isotoner brands), Pier 1, Iconix Brands and NYDJ apparel. On the second-tier list are Petco, Neiman Marcus, Ascena and Bluestem Brands.

Dive Insight:

While retail defaults have peaked more than a year ago, according to a Moody's report this week, there still pockets of risk and plenty of vulnerable operators in the industry. 

As S&P Global noted in a report also issued this week, the retail industry had the highest default rate last year among industries, making up 26% of all corporate defaults tracked by the ratings agency. "The retail sector is still facing difficulties as brick-and-mortar stores try to adjust to the fact that shoppers are increasingly turning to on-line purchases," S&P analysts said in the emailed report. 

And improvements in the industry have been painful, or at the least costly. "Following two volatile years of bankruptcies and defaults, the US retail industry has finally paused to catch its breath — although gains continue to be hard won," Moody's Vice President Mickey Chadha said in the report issued this week. "[E]ven those at the top are working a lot harder for incremental dollars, evidenced by the ongoing discount wars that Amazon and Walmart continue to wage."

While the larger players like Walmart and Target invest in prices and their store, logistics and digital operations, smaller players are at a disadvantage. Those players carrying large debt loads are even more vulnerable and largely make up the ranks of retailers filing into bankruptcy court.

The pressure on retailers to adapt to a shifting consumer landscape leaves little room for error. "All of this means any shift in the currently solid US economy, or geopolitical or other unforeseen disruptions, could make it more challenging" for retail to stay on an upward trajectory, Chadha said.