April 13, 2017
So far this year, nine major U.S. retailers have declared bankruptcy, a rate disturbingly close to recessionary levels. Bankrupt retailers include Payless ShoeSource, hhgregg, The Limited, RadioShack, BCBG, Wet Seal, Gordmans, Eastern Outfitters and Gander Mountain. Another trend shows retailers that are hanging on to their businesses closing down stores in record numbers, with more than 3,500 stores expected to close in the next several months. J.C. Penney, RadioShack, Macy’s, and Sears alone will close more than 100 stores each.
Business Insider quotes bankruptcy lawyer Corali Lopez-Castro as saying that, “2017 will be the year of retail bankruptcies.” In 2008, retail bankruptcies totaled 20, “a level that the U.S. could reach by September if the current rate of filings continues, according to CNBC.”
Worse, the private equity firms and banks that helped out some retailers during the recession are “less willing now to step in,” say RBC Capital Markets analysts. “The issues this time around are more structural rather than quick operational fixes,” they said.
Retailers with lots of physical stores are the hardest hit, as “shoppers’ habits are fundamentally changing, and some retailers just aren’t cut out to survive in the new retail environment.” Real estate research firm Cushman & Wakefield reports that visits to shopping malls have declined by 50 percent between 2010 and 2013, and people spend more on “restaurants, travel and technology, while spending less on apparel and accessories.”
Shopping malls are also finding it more difficult to find tenants for shuttered spaces. RBC Capital Markets says that, “most of the emptied store space has been taken over by expansion of restaurants, entertainment spaces/movie theaters, and health & wellness destinations (hair/nail salons and fitness studios).”
The Atlantic digs into why this is happening, especially in an environment in which “GDP has been growing for eight straight years, gas prices are low, unemployment is under 5 percent, and the last 18 months have been quietly excellent for wage growth.” It identifies three reasons behind retail bankruptcies: the robust rise of e-commerce, over-building of malls and the fact that Americans are spending their disposable income on meals out with friends rather than retail goods.
Yes, Amazon and other online retailers have been “the most significant trend affecting brick-and-mortar stores,” but the “legacy of the Great Recession” is also a significant factor.
The Atlantic also makes an interesting prediction, that the rise of autonomous vehicles could usher in a boom for current retailers, as they shift their inventory to roaming minivans summoned by smartphones to shoppers’ homes. “The future of retail could be even weirder yet,” it concluded.