The U.S. retail apocalypse is far from over.

While the collapse of storied merchants like Sears Holdings Corp. and Toys “R” Us Inc. has left stores shuttered across America, retailers still make up about a fifth of the universe of distressed borrowers. Consumer confidence is slumping.

On Friday, the head of the biggest mall owner in the U.S. cautioned that more retailer bankruptcies are coming. Economists are increasingly worried about a recession in the next year. And even relatively strong store chains like Macy’s Inc. and Kohl’s Corp. have warned that their results over the holiday shopping season were lackluster.

All this adds up to what Barry Bobrow and Lynn Whitmore at Wells Fargo Capital Finance see as a prolonged restructuring for the industry. It’s becoming increasingly difficult for retailers to delay their day of reckoning as they struggle with high debt and make necessary investments in online commerce.

“We’re heading more and more into a distressed market,” said Bobrow, managing director at Wells Fargo Capital Finance. Whitmore, managing director of retail finance, says retailers are laboring under debt levels that “just eclipses anything we saw in the recession.”

There are reasons to be hopeful about the retail outlook improving. Stores have improved their online sales, which could help operating income grow 5 percent to 6 percent this year, according to Moody’s Investors Service. The ratings firm raised its outlook on the industry to positive from stable in October, the first shift since July 2015.

Only about 4.9 percent of retail mortgages were overdue in January, down from more than 6 percent at the start of 2018, according to commercial mortgage bond data provider Trepp. And many of the biggest troubled retailers have already failed, said Sharon Bonelli of Fitch Group Inc.

Even so, there are still plenty of struggling merchants, and more will run into trouble if economic growth slows. David Simon, chief executive officer of Simon Property Group, the largest mall owner in the U.S., said on a conference call with investors on Friday that there are store chains that his company is “nervous” about, and that more bankruptcies are coming for retailers with high debt loads.

Default rates on the industry’s junk bonds have risen to 10.2 percent as of December, according to Fitch Ratings, more than double the 2017 figures, even if it’s down a bit from last year’s highest levels. Below are companies that have been flagged by analysts at Moody’s, S&P and Fitch as some of the most at risk of restructuring their debt or in some cases even filing for bankruptcy.

Neiman Marcus

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