Sparta Report

The Great American Retail Implosion Shows No Signs of Abating

Over the holidays, a lot of retailers claimed to have had blockbuster sales and the claim was made that the “Great American Retail Implosion” of 2017 had finally come to an end.

In fact, the results are far more mixed than the boasting over the holidays indicated. It looks like there is no saving Sears, and I am getting pretty worried about Macy’s too:

Macy’s is planning 5,000 job cuts, including closure of seven previously unidentified stores and other cuts at remaining locations, as it seeks stability in a tumultuous climate for physical retail.

The retailer’s cost reductions come after its holiday sales in stores open at least a year rose 1.1%.

Although the company described its holiday sales as “solid,” the performance trailed fellow department-store chain J.C. Penney, which posted a 3.4% increase Thursday.

Macy’s stock fell 7.1% in early trading to $23.54.

The company has been struggling with its massive real estate footprint and traditional retail model, as Amazon.com soars and physical competitors such as treasure-hunt retailers T.J. Maxx and Marshall’s offer alternatives.

Analysts credited Macy’s with incremental improvements, though the sales increase may have been largely attributable to the strong economy, GlobalData Retail analyst Neil Saunders said.

Sears is in a similarly bad situation. The struggling retailer announced it was going to also be doing another round of store closures, shuttering 64 Kmart stores and 39 Sears stores.

The company has closed over 2,000 stores in the last twelve years and only about 1,000 are still operating in the United States. To be honest, I am amazed that there are even still 1,000 around. Most of the Sears stores near me have closed down.

Sears is still insisting that the store closures are part of a “transformation” plan. Does anyone believe these guys?

The Daily Mail has a list of Kmart and Sears stores that are closing down here.

Another story shows just how bad the retail implosion has been for job creation. Fewer jobs were created in December 2017 because retail job losses ended up partially offsetting the gains, with this report claiming about 20,000 retail jobs vanished in December. Amazon and e-commerce were cited as the primary cause of the lost jobs. The article says these jobs are not being replaced.

Moody’s Investor Service, one of the “big three” credit rating agencies, has said they think the retail implosion should ease in 2018… but that at the same time, more defaults are on the way:

“After a particularly difficult year, the US retail and apparel industry is bracing for more defaults and rating downgrades in the next few months,” said Moody’s Vice President, Christina Boni. “That said, we expect defaults among speculative-grade retailers to drop sharply to 5% in October from 9% today, but only after peaking at 11% in March.”

The US retail and apparel industry chalked up 11 defaults last year, compared with seven in 2009, at the height of the recession, Boni says. Rating downgrades shot up 87% in 2017, while upgrades declined 43%. In the meantime, Moody’s Liquidity Stress Indicator for retailers was up more than 3% last November from a year earlier, with the rise in the number of distressed companies signaling more defaults ahead. Once the coming tipping point has passed, however, numerous sub-sectors will be left stronger.

In the current environment of pricing transparency, cutthroat pricing and more demanding consumers, retailers must have strong balance sheets if they’re to remain competitive, Moody’s notes. The operating profit margins of companies that have invested heavily in online channels have come under pressure in the past few years, a trend most evident among department stores, apparel and footwear sellers, office supply stores, and discount and warehouse companies.

This does not sound like a whole lot of “easing” to me. With the exceptions of Amazon, Wal-Mart, Best Buy, and maybe Target, we can expect more turbulence in the retail sector in the coming year.

Get real time article updates directly to your device, subscribe now!

Comments