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The worst of the retail apocalypse is on the way

(BUSINESS NEWS) We’ve long lamented the decline of big box retail, but one report says the “Retail Apocalypse” is just beginning and it’s about to get much worse.

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You have likely already noticed the impacts of what has been darkly dubbed America’s “Retail Apocalypse”: Half-empty strip malls, brightly-colored signs announcing closing sales, or maybe your once-favorite department store has declared bankruptcy.

Whatever you’ve seen, it’s only going to get worse, according to a comprehensive report from Bloomberg, implying certainty in the fall of the retail industry as more than just sensational news headlines.

U.S. retailers announced more than 3,000 store openings in the first three quarters of this year, but that’s coupled with 6,800 chain store closures. All while consumer confidence levels are high and unemployment is low, and the economy keeps growing – a mix you’d think would be conducive to retail growth and strength.

However, more and more retail chains are filing for bankruptcy and financially distressed. This has caused an increase in the number of delinquent loan payments from malls and shopping centers containing said retailers.

So what’s the deal?

No, it’s not because Amazon.com is taking over the world (yet) or because millennials would rather travel than buy more “stuff.”

The primary cause for the retail apocalypse is not buying habits, it is that many failing retail chains are overloaded with debt.

There are billions of dollars tied up in the borrowings of troubled stores, and that strain is going to become even harder for the market to handle.

The impact of retail’s crash and burn will be felt across the country and economy. Low-income workers will be displaced, local tax bases will shrink, and investor losses on stocks, bonds, and real estate will grow.

In a nutshell: It’s only going to get worse.

Until recently, retailers avoided bankruptcy by refinancing their debts. However, as the market has evolved, lenders have become less forgiving, according to the Bloomberg report.

Additionally, an overwhelming amount of risky retail debt is coming due within in the next five years. For example, teen costume jewelry chain Claire’s Stores, Inc. has $2 billion in borrowings that will start maturing in 2019 – and it still has 1,600 stores open in North America.

In fact, $100 million of high-yield retail borrowings are set to mature this year alone and that will jump to $1.9 billion in 2018, according to Fitch Ratings Inc. data cited by Bloomberg. Between 2019 and 2025, that figure will expand to an annual average of almost $5 billion.

And, while the demand for refinancing increases, credit markets are tightening. Thus far, retailers have delayed their doom thanks to the money the Federal Reserve has pushed back into the economy since the Great Recession. Low interest rates made the risker retail debt (and the higher return it brings) more appealing. But now as the Feds raise their benchmark interest rates, that demand will decrease.

Then there’s the matter of store credit cards. The largest private-label card issuer, Synchrony Financial, has already increased reserves in order to help cover loan losses this year. Citigroup, Inc. has reported declining rates on retail portfolios, too. Why? Because shoppers are more likely to stop paying back their retail card debt if the store they went to has closed.

As all this compounds, it could directly impact the industry that employs the largest number of Americans who are at the low end of the income scale. According to Bloomberg’s research, salespeople and cashiers in this industry totaled a whopping eight million. Since our last financial crisis, employment rates have been steadily increasing, even in the retail industry. Until this year, that is. Retail store jobs have decreased by 101,000 this year so far, no thanks to store closures.

Many of the largest U.S. retailers (think Target and Walmart) have decided to reduce their brick-and-mortar space. Sure, the e-commerce boom has taken a toll, but the U.S. has been considered “over-stored” ever since investors poured money into commercial real estate as the suburbs boomed decades ago, which began an era of big box stores.

It’s time for that boom to bust.

At the end of Q3, 6,752 U.S. retail locations were scheduled to close, excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That’s more than double the 2016 total and inching close to the all-time annual high of 6,900 recorded in 2008, the midst of the recession.

Clothing stores have taken the hardest hit, as 2,500 locations are closing. Department stores aren’t faring well, either. Macy’s, Sears and J.C. Penney are all downsizing.

Overall, about 550 department stores plan to close their doors.

This really does sound apocalyptic, doesn’t it?

The consumer impacts of what’s to come will be widespread. Ohio, West Virginia, Michigan and Illinois have been some of the hardest hit so far, but other states will feel the burn, too. Florida, for example, relies on retail salespeople more than any other state, according to Bureau of Labor Statistics cited by Bloomberg.

Insert a grimacing emoji face here.

I think Charlie O’Shea, a Moody’s retail analyst for Moody’s, summed up the retail industry’s prospects impeccably at the end of Bloomberg’s report: “A day of reckoning is coming,” he said.

Sienna is a Staff Writer at The American Genius and has a bachelor's degree in journalism with an emphasis in writing and editing from the University of Wisconsin Oshkosh. She is currently a freelance writer with an affinity for topics that help others better themselves. Sienna loves French-pressed coffee and long walks at the dog park.

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1 Comment

1 Comment

  1. Paul O'Brien

    December 4, 2017 at 1:43 pm

    As is what’s happening with many other industries, retail’s reckoning will come and through it retailers will wake up to the fact that what people are willing to pay for is experiences.

    What the heck does that mean in this context??

    I’m not going to drive and shop at a local retailer to get the exact same plastic junk or $5 shirt that I can get Amazon to send to me in an hour.

    But let’s not neglect that people like to shop – as an activity or social experience. Shopping isn’t just about consuming the things we want or need – it’s a matter of what it has always been in certain contexts: an experience to see products, hang out with friends, or just spend some time doing something you enjoy.

    The reckoning is in the price competitive stores pushing commodities, aggressive Sales pressure (autos), and regularly purchased products. There is no market for a store front for those things.

    But what we might be excited about that could thrive are the experiences we enjoy: Local artists and products, food & beverage, specializations in innovative goods (tech, apparel, autos), etc.

    “Clothing stores have taken the hardest hit, as 2,500 locations are closing. Department stores aren’t faring well, either. Macy’s, Sears and J.C. Penney are all downsizing.”
    — Yeah… because I don’t need to drive, park, and deal with the awful layout of a big box store just to get the same pair of jeans I’ve been buying for the last 20 years.

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Business News

Class action suit hits vape company, Juul for illegally marketing to teens

(BUSINESS NEWS) Juul is a tiny vape stick that is popular among teens, a population the company is allegedly marketing directly to, grooming a new generation of addicts.

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This week, a class-action lawsuit has been filed against Juul for violating federal laws by marketing to American children.

Illinois Senator Dick Durbin and ten of his Democratic colleagues have written a letter to the CEO of Juul Labs, lambasting the e-cigarette company for prioritizing profits over public health. The biggest concern among the complaints that both the legislators and parents across country have against the vaping-tobacco giant is that Juul purposefully advertises their products for teenagers.

Juul denies such intent, claiming that their product (which has taken over two-thirds of the e-tobacco market according to some sources) is primarily to help traditional adult tobacco consumers quit smoking cigarettes. They’ve even released an ad recently that tried to emphasize this image.

However much they try to pivot to this e-cigarette as a self-care market, their own history is against them. According to the research of Robert Jackler, as profiled on the Smithsonian, the imagery that Juul uses in its advertisements is a throwback to the unregulated day of big tobacco in how it overtly entices youth. This is a part of a growing public health crisis.

Juul first became famous for looking like a USB drive, and became used widely by school children who could trick teachers into thinking they were carrying a harmless device, not a nicotine machine.

One of Jackler’s insights is that today’s teenagers were never as likely to begin smoking traditional cigarettes as people from the late 80s and 90s, so they were an untapped market. The New York Times, reporting on the increasing public pressure the FDA faces to regulate the e-tobacco industry, even went so far as to ask, “Did Juul lure teenagers and get customers for life?”

Juul’s reach to the younger generation was also confirmed by a team of researchers from Stanford University. By analyzing social media posts from Juul’s launch in 2015 to last fall, the Stanford team concluded that where Juul’s real innovation in the smoking and e-cigarette industry was not its product, but the way that it mobilized social media to hook young consumers.

According to an interview with Stanford researchers, “Juul hired social media influencers — people with large followings on Instagram — to promote its products. It created hashtags — #juul, #juulvapor, #switchtojuul, #vaporized — that the influencers blasted out to their followings, often featuring images of young people Juuling, or doing tricks or jokes with their device.”

The company shut down its social media accounts last year, but the damage was done. The hashtags are still updated daily.

This sort of bait-and-switch advertising extends beyond Juul’s young American audience and their marketing efforts.

Take for example, an Indian company that recruited Pierce Brosnan for what he believed was a commercial for a breath freshener line. Instead, it was a type of tobacco product called pan bahar (it is similar to chewing tobacco). The star said that he wasn’t aware of the nature of the product, that the company didn’t disclose its harmful effects, saying that he wouldn’t have chosen to endorse it otherwise, as he has lost family members to cancer.

Not wanting to endorse tobacco product, of course, is a commendable stance for Brosnan. But where are the social media influencers that continue to take money from Juul to target teens? Where is their rejection? They could very easily take a cue from Brosnan and say they were unaware, but instead, continue to force feed hashtags down unsuspecting childrens’ figurative throats.

Juul can call themselves an alternative to smoking all they want, but if even our politicians can see through the B.S., Juul has a real problem.

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High School ‘Signing Day’ for seniors starting careers, not sports or college

(BUSINESS NEWS) Our culture has long glorified athletic accomplishments, but as technical trades flourish in America, celebrating that career path is a new move – one we applaud!

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The scene is familiar: excited students at a table overlooking proud parents and teachers with letters of intent before them. “Signing Day” has become a rite of passage for high school seniors intending to continue a sport in college.

However, Henrico County Public Schools in Virginia are celebrating students beginning careers immediately after graduation.

Instead of joining a college football or basketball team, these students are acknowledged for entering the workforce, and for seeking success and financial stability as opposed to going into massive debt by enrolling in college.

College has become a norm in society in spite of the financial risks, and job placement is no guarantee for graduates. The option is not for everyone, and we should be doing more to recognize those who are pursuing technical skills. The objective of education, at any level, is to prepare students for a successful career.

By definition, these seniors from Henrico County have taken the first step towards that goal.

At the signing ceremony, the students met with their future employers to sign letters stipulating what they would do throughout their employment, and outlining the training and benefits. It is a big affair, and in an era where promposals (ugh) are a thing, why not glorify and enthusiastically praise in public an alternative Signing Day?

Students wore hats and shirts representing their future place of employment, and it is worth noting that this is a moment to celebrate adulthood, and making strides towards independence.

Technical skills are in demand, and it’s about time we lift up tradesmen and tradeswomen across the country. Their contributions help make our communities stronger.

Students should feel encouraged to pursue paths towards success which best suits their individual goals. And there is nothing wrong with celebrating them as a community, and hopefully someday, as a society.

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Business News

How the Lean concept can have the biggest impact on your bottom line

(BUSINESS) Using the Lean business concept and asking the non-sexy question of “What’s dumb around here?” your business will outpace your competitors in no time.

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Entrepreneurs love solving problems. That’s what they’re good at doing. In fact, the more complex, difficult and messy the problem, the more the entrepreneur will enjoy the challenge. Entrepreneurs are especially good at solving problems that nobody knew were there. Think about Steve Jobs: He knew that we needed a pocket MP3 player before we even knew what it was.

While entrepreneurs are coming up with the next “big” thing, we need the non-entrepreneurs in our organizations focused on solving the small problems in our company with the same enthusiasm. Imagine if every one of your team members were consistently looking for opportunities to improve your systems, processes and service delivery. Those subtle changes made in the non-sexy parts of the business usually have the biggest impact on the bottom line.

This is a business concept called Lean, in which a company changes their processes to create the most benefit to the customer using the least amount of resources possible. Lean is commonly used in the manufacturing industry, but its principles can be used in any business to change the way of thinking and doing things.

I recently witnessed a great example of how Lean principles were used to improve one of my clients, LuminUltra – a leading provider of microbiological testing hardware, software and services. The company serves industries that need to know quickly and accurately what’s living in their water. At a recent quarterly planning session at the LuminUltra offices in Fredericton, Canada, COO Charlie Younger shared a powerful story about the company’s manufacturing facility and challenging the status quo.

During the expansion of the company’s manufacturing facility, one of the team members was lamenting to Charlie about how much time it took to complete a lengthy step of the manufacturing process – one specific quality check that was very time-consuming. He remarked that in the history of the company they never had a single machine fail the test. Charlie’s first thought was, do they even need to perform this specific test again?

After more discussion with colleagues, the team realized that the other quality checks performed earlier in the manufacturing process would always identify a defective unit. With this knowledge, the manufacturing team asked for permission to perform minimal testing to still provide assurance with less work. When presented with the information, the company leadership agreed that it was a great idea and would save time and money as well as improve the employee experience. But the bigger question was: Why hadn’t anyone ever questioned this lengthy step of the manufacturing process before?

Charlie, having run Lean programs in the past, has seen this issue before: People continue to do what they’ve always done even if they think there is a better way. He thought this would be a great opportunity to use a fun, simple but elegant technique to capture other status quo breakers – in other words, he decided to use the same principles for changing the company’s production process to make other company decisions.

With that, he posted a whiteboard in the manufacturing room with the title “What’s Dumb Around Here?” and encouraged team members to capture possible “dumb things” to add to it. These topics are discussed and vetted during their Lean process meetings to determine if they can be improved.

When I discussed the new process with Charlie, he noted, “First, you have to create an environment where people are willing to question the status quo. We have always been highly focused on quality and accuracy, so the team thought it was outrageous to openly question a quality check we had been performing for years.”

He continued, “You have to help your management team be open to receiving ideas that might seem crazy and not overreact to the suggestions. Instead, simply ask them to explain their logic. More often than not, the front line knows a better way to do things but does not know how to navigate the change. The beauty of using Lean techniques is that you now have an easy navigation path to discuss, approve and roll out changes. Suddenly, you have an energized front line solving problems with minimal involvement from management – how great is that?”

While LuminUltra continues to grow their product line and expand into new markets, it expects that its implementation of Lean principles will help it make subtle but important modifications to processes that will positively affect its bottom line. The CEO, Pat Whalen, remarked, “If we can produce our products faster and more cost effectively and get them into the hands of our customers faster, we can have an even bigger impact on the water sector with our microbiological monitoring products. I need all of our team members thinking how we can improve every single day. The water sector needs us.”

Every visionary, big-thinking entrepreneur needs a team that challenges the status quo. How are you encouraging your team members to identify, “What’s Dumb Around Here?”

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