Dive Brief:

• The debt loads that many retailers or their private equity owners have taken on, many during the leveraged buyout boom before the 2008 recession, will weigh heavily on them this year as loans come due, according to Standard & Poor’s Capital IQ Global Credit’s retail report.

• The issue is exacerbated by sluggish sales that make it difficult for many retailers to sell enough to meet their obligations. “Without a positive development in consumer behavior during the holiday season, we assume 2016 will continue to challenge companies’ ability to meet shifting consumer preferences for value,” the report reads.

• Most retailers are junk-rated, the report says. Department stores, specialty apparel retailers, and other specialty retail stores face the most dire circumstances.

Dive Insight:

Retailers are well aware that consumers are wary of spending, are patient for discounts, and prioritize experiences and tech devices over apparel and other items. But retailers that are over-burdened by debt are feeling the pain most acutely, and could be in hot water in 2016.

Three overarching factors loom over the retail landscape and could worsen the situation, according to the S&P report: Consumers could become even more cautious and hardwired to seek discounts, retailers may have limited success in matching their merchandise to new consumer preferences, and sluggish economic growth in some markets could hurt retailers there.

“We expect more retail defaults in 2016 than 2015 and 2014,” S&P credit analyst Robert Schulz told Bloomberg. 

The issue is no longer about the economy, with the economic and jobs picture more rosy, but more tied to the retail sector itself, which overall has struggled to master e-commerce and meet consumer demands on price and merchandise. Amazon remains a thorn in most retailers’ sides.

“What looks the same but costs three times less is where everyone’s going,” Patrick Dalton, CEO of Gordon Brothers Finance Co., an asset-based lender that works with retailers, told Bloomberg. “Amazon is crushing everybody.”