James Quinn provides his take on retail. Let’s begin with one of his graphs:
The bars go the wrong way in the two graphs above. This is not a recovery. It looks like a train wreck in progress.
The country is over-malled and over-retailed compared with any other country on earth. In 2011, Mike Shedlock dealt with the overbuilding and the developing problems which now are becoming apparent to even the dullest of Wall Street analysts (and to real estate developers as their inventory has more and more empty retail space). Mish provided the following retail space comparison along with closings in late 2011:
Per Capita Retail Space Comparison
- US 46.6 square feet
- India 2.0 square feet
- Mexico 1.5 square feet
- UK 23.0 square feet
- Canada 13.0 square feet
- Australia 6.5 square feet
It seems to me stores have a major problem here. The problem is increasing competition for customers who have no job and/or retirees with little need for anything but food and shelter.
- 405 Blockbuster
- 633 Borders
- 200 GameStop
- 189 Gap
- 160 f.y.e.
- 117 Anchor Blue
- 117 Foot Locker
- 100 Talbot’s
- 71 A.J. Wright
- 69 Metropark
- 63 Friendly’s
- 60 Rite Aid
- 52 Destination Maternity
- 50 Abercrombie & Fitch
- 50 Hot Topic
- 45 Big Lots
- 45 Family Dollar
- 43 Select Comfort
- 43 Sonic Drive-In
- 35 Denny’s
That is a partial list. The report did say there are far more store openings than closings. However, they are all competing for the same customers.
Why is this happening? Simple really. Here are some of the major factors:
- The US was never as well-off as it believed during its three-decade debt binge.
- The country is getting poorer as the economy continues to underperform and unemployment soars (real unemployment not the phony government numbers).
- Credit levels are reversing as they have to, which forces more income away from consumption and into debt service.
- On top of all this is the changing nature of consumption. An alternative channel, the internet, has been dramatically reducing the need for retail outlets for a decade or more.
The only thing surprising here is the stupidity of the retail executives who ignored these factors and continued to add retail space. Blinded by the status quo and driven to show growth, the simple solution was not to think but to build more space. After all, that always worked in the past.
Mr. Quinn is especially hard on these “giants” of industry:
To understand the absolute idiocy of retail CEOs across the land one must parse the employment data back to 2000. In the year 2000 the working age population of the U.S. was 213 million and 136.9 million of them were working, a record level of 64.4% of the population. There were 70 million working age Americans not in the labor force. Fourteen years later the number of working age Americans is 247 million and only 144.6 million are working. The working age population has risen by 16% and the number of employed has risen by only 5.6%. That’s quite a success story. Of course, even though median household income is 7.5% lower than it was in 2000, the government expects you to believe that 22 million Americans voluntarily left the labor force because they no longer needed a job. While the number of employed grew by 5.6% over fourteen years, the number of people who left the workforce grew by 31.1%. Over this same time frame the mega-retailers that dominate the landscape added almost 3 billion square feet of selling space, a 25% increase. A critical thinking individual might wonder how this could possibly end well for the retail genius CEOs in glistening corporate office towers from coast to coast.
Whether you agree or not that we are in the downside of an economic cycle is irrelevant. The bust, where mis-allocated capital dies, never truly occurred as a result of government stimulus and interventions. This only worsened and prolonged the problem. Despite government claims of a recovery, the economy appears to be properly re-allocating resources. Economic forces are punishing the stupid. These idle resources, with more to come, is just how it keeps score. This scorekeeping has just begun.
Mr Quinn has it right when he says:
Quarter after quarter there will be more announcements of store closings. Macys just announced the closing of 5 stores and firing of 2,500 retail workers. JC Penney just announced the closing of 33 stores and firing of 2,000 retail workers. Announcements are imminent from Sears, Radio Shack and a slew of other retailers who are beginning to see the writing on the wall. The vacancy rate will be rising in strip malls, power malls and regional malls, with the largest growing sector being ghost malls. Before long it will appear that SPACE AVAILABLE is the fastest growing retailer in America.
JC Penneys and Sears are will be the next General Motors, except without any bailouts:
Store closings so far have only been a ripple compared to the tsunami coming to right size the industry for a future of declining spending. Over the next five to ten years, tens of thousands of stores will be shuttered. Companies like JC Penney, Sears and Radio Shack will go bankrupt and become historical footnotes.
Keep this process in mind the next time you listen to President Obama or CNBC.