The “Retail Apocalypse” Isn’t Over: It Is Only Just Getting Started

Thursday, February 7, 2019
By Paul Martin

by Tyler Durden
Wed, 02/06/2019

Last year’s holiday sales season was one of the strongest in years. But unfortunately for America’s struggling retailers, many missed out on the sales bonanza as Amazon and other e-commerce platforms accrued nearly all of the sales growth while foot traffic at US malls was stagnant. Already, Kohl’s and Macy’s have helped crush the narrative of the strong consumer by slashing their earnings guidance, something that doesn’t bode well for Q4 GDP, thanks to what we warned would be an unsustainable inventory build up that has inflated growth numbers in recent quarters.

The retail space has already seen the first headline-grabbing retail bankruptcy of the year (see: Gymboree). And as Bloomberg warned in a story published this week, even after high-profile bankruptcies including Sears and Toys R’ Us, the “retail apocalypse” is far from over.

Though the Fed has capitulated to the whims of the market, retailers still make up about one-fifth of the universe of distresses borrowers. And on Friday, the head of the biggest mall owner in the US warned that more bankruptcies are coming this year. Economists are increasingly worried about a recession this year or next.

Simon Property Group CEO David Simon told investors on Friday during a conference call that there are chains that his company is “nervous” about. Anybody who has traveled to a US mall recently may have noticed this change: Where once there were shoppers, now they halls look disconcertingly empty.

As Barry Bobrow and Lynn Whitmore at Wells Fargo Capital Finance warned, the industry is likely heading for a “prolonged restructuring” as the pre-crisis debt binge undertaken by retailers continues to haunt the broader industry. Retailers who are already weighed down with debt are also facing pressure to innovate and pivot to e-commerce. But their financial pressures are leaving them little wiggle room. Put another way, the problems facing Sears are effectively an extremely acute version of the problems facing the broader industry.

“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.”

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