Retail Apocalypse Now

Of course it’s your size!

Here in Seattle, home of the retailer that everyone loves to hate (Amazon), we hear a lot about the Death of Retail, and it usually is aimed squarely at Amazon. It’s not that I like Amazon (in fact I loathe it, and loathed it long before I moved here), but it is giving too much credit to evil genius Jeff Bezos. It might be the case that Amazon benefitted from lucky timing, more than a terrific business model or fickle millenials who only buy things online, when they buy things at all.

Bloomberg tells us  that what happened to US retail:

The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.

Got that? Big retailers wanted to become behemoth retailers. They took on debt to leverage-buy out their competition. Thus they put huge debts in their books and huge profits in the pockets of Wall Street bankers. And then they were left trying to service their debts:

There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains. The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.

Anyway, the Bloomberg story is not just a ‘splainer, there is a cautionary note here about what could happen next, and a reminder of the Great Recession:

The ripple effect could also be a direct hit to the industry that is the largest employer of Americans at the low end of the income scale. The most recent government statistics show that salespeople and cashiers in the industry total 8 million.During the height of the financial crisis, store workers felt the brunt of the pain when 1.2 million jobs disappeared, or one in seven of all the positions lost from 2008 to 2009, according to the Department of Labor. Since the crisis, employment has been increasing, including in the retail industry, but that correlation ended as jobs at stores sank by 101,000 this year.

So how bad is it, really?

The industry’s response to that kind of doomsday description has included blaming the media for hyping the troubles of a few well-known chains as proof of a systemic meltdown. There is some truth to that. In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year.

But chains also said 6,800 would close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.

Republicans dither and bleat about government debt but say nothing about private sector debt, which is probably a bigger threat to our economy. It is not just us proles who are carrying a lot of debt, it is also our employers.

 

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6 Responses to Retail Apocalypse Now

  1. Got that? Big retailers wanted to become behemoth retailers.

    Nope. Private Equity firms [cough]Bain Capital[cough] doing the bust out on these companies is what did it…

    https://mronline.org/2008/06/03/the-bust-out/

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  2. I suspect the stagnation of wages, decline of purchasing power, and spreading un- and under-employment is also playing hell with demand….And I think Walmart is far more to blame than Amazon, with it’s incessant outsourcing, using public subsidies when they under-employe their workers, and their planned expansions that are targeted to destroy small, local businesses.

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  3. Sean666 says:

    Maybe after the great recession americans have decided that they don’t need some of these way overpriced brands. Abercrombie and fitch, ralph Lauren… Why buy a Polo shirt at ralph lauren for $65-85 when you can go to the outlet mall or Walmart and buy one for $15. The outlet mall near me in Asheville,NC is packed on weekends, americans are willing to buy, they are just tired of overpriced stuff, part of the reason Macy’s and the department stores are dying a slow death. I wish the would just shut down Sears and sell the real estate, that was the apparent goal all along by the hedge fund sleaze that bought it.

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  4. Osirisopto says:

    From the perspective of a business owner the sales tax exemption on internet purchases did it.

    I watched several local suppliers go under because they couldn’t compete with online merchants because even after shipping the cost to purchase was 8 – 10% less than the locals, the result of the economics of scale.

    For a time I tried to patronize my local suppliers, but my competitors capital expenses were 10% lower than mine.

    I’m responsible, but what could I do? It was them or me.
    DW needs more than a job as a cashier at Safeway can provide around here.

    My only saving grace is my work caters to the top 10%. They wont be hurt by the demise of local retail. They’re invested in it.

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  5. Blue Gal says:

    The fake-sponsor of The Professional Left Podcast, Croc Blockers, has a new logo! Thanks!

    Liked by 1 person

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