by Umar Farooq
In 2017, more than 300 retailers have already filed for bankruptcy and it is being projected that a staggering 8,640 stores will close in America by the end of this calendar year.
“Americans cut spending at gas stations, department stores and electronics shops in May as retail sales registered their biggest drop in 16 months, a cautionary sign for the economy. The Commerce Department said Wednesday that retail sales dropped 0.3%, the first decline since February and the sharpest since a 1% decrease in January 2016. Economists had expected sales to increase slightly in May after rising 0.4% in April. Last month, furniture and home furnishings stores were up 0.4% from April. Clothing and clothing accessories stores saw a bump of 0.3%. Sales fell 2.8% at electronics stores, the biggest such drop since March 2016. They fell 2.4% at gasoline stations and 1% at department stores, which have struggled with competition from online retailers, especially over millennial shoppers”. Latimes
The condition is getting worse for the troubled brick-and-mortar retail world. After spending years in the market to compete with all-powerful Amazon, retailers have been closing hundreds of stores due to decreasing sales. Experts are even predicting that one-quarter of America’s malls could close within the next five years. And in at least one way, the situation is worse for retailers now than it was during the doldrums brought on by the financial crisis, a report released last week by Moody’s Investors Service indicates. The new report gives ratings of Caa or worse—defined as “subject to very high credit risk”—to 22 major retailers. Time
“Rising interest rates present further problems for distressed retailers, making it harder and more expensive to raise needed capital. That could be the tipping point that sends some of the 19 companies on Moody’s Investor’s Service March list of distressed retailers (which include Rue21 and Payless, which have already filed for bankruptcy protection) into bankruptcy. Those companies reportedly had over $3.7 billion in debt that matures over the next five years with about 30% of it due by the end of next year. As sales at the chains, which include well-known names like Sears Holdings, David’s Bridal, and Gymboree, continues to fall, rising interest rates could make it harder to refinance and push debt out.” Usatoday
The bottom-line is that more chains will close and will get out of business sooner or later. With the closing of businesses the shopping malls will definitely close. For retailers to stay in business, they will need to find models that give consumers a reason to visit their stores. Both J.C. Penney and Macy’s have starting doing that by integrating store-within-a-store concepts, and integrating the online and real-world shopping experience. What’s crystal clear is that few brick-and-mortar retailers are safe and that for many, things will get worse before they stabilize. There’s no one plan for competing in this new reality where consumers have much less reason to leave their house. Competing in that marketplace will require a major pivot from many old-style retailers, and some won’t be able to make that happen.
by Umar Farooq