Retail Apocalypse Reloaded

Retail is a ruthless industry of natural selection of consumer preferences. If nearly 10,000 stores closed in 2019, in 2020 it won’t just be the 15,000 that Coresight Research (Deborah Weinswig) predicts.

The problem of course is a retail analyst is not an economist nor are they an epidemiologist. I’m not either, but it’s obvious the retail apocalypse will be accelerated in this financial crisis of 2020:

  • Collapse of small businesses
  • Corporate debt crisis
  • Liquidity and cash bankruptcies
  • Stock market and investor uncertainty
  • Prolonged changes in consumer spending patterns (e.g. fewer in-store visits)
  • More cautious post-pandemic spending
  • Real estate and banking crisis
  • Supply chain disruptions
  • Slowness of bailouts and loans to reach most vulnerable small business owners
  • Liquidation & discount sale inefficiencies due to radical and prolonged social distancing measures leading to inventory issues

What do we tell the Mom and Pops retail stores or restaurants? Your time up is up? This financial crisis is a small business disaster for the American and global economy.

We were already distancing ourselves from the American Mall before the pandemic. Most retail stocks have declined about 65% in the last 6 weeks. That’s not just a dip in their market cap, that’s the end of their business model for many of these brands. More than 60 major retailers have already furloughed many of their employees in a last ditch emergency attempt to reduce costs.

Retail store closures this year are now on pace to not just be double of last year, but triple. That means around 27,000 retail store closures. 2019 was already a record at over 9,300 store closures, but in 2020 we’ll have a financial recession to deal with as well.

If you wanted to engineer a faster adoption to E-commerce, grocery delivery and novel ways of shopping in the future, you could not have scripted a better event, a total shutdown of the consumer economy and the retail and food services sector. This isn’t a slow death of the retail apocalypse, this is a retail massacre.

While hundreds of thousands of jobs could be vulnerable for retail sales and small business workers, sales for Amazon, Walmart, Costco and parts of the grocery sector are surging. This puts pressure on already razor thin margins many of these retailers were facing in an economy that was already turning sour before the recession with the longest bull market in recent memory.

Eleven years was a long time to go without a recession, but this financial crisis is likely to be worse than 2008, something I think that retail analysts like Deb or the CEO of the NRF, can’t for political reasons even admit.

Retailers, though, are facing a cash-flow problem, not just a structural challenge. They are likely to be part of a corporate debt and real estate crisis that’s looming. What happens when too many rents go unpaid? What happens when social distancing lasts for months and not just a few weeks? Filing for bankruptcy doesn’t create a sudden cure for the virus, it doesn’t create a cure to open stores.

Retail brands, landlords, lenders, suppliers and broken supply chains and disrupted consumer demand are all part of a vicious cycle that will accelerate the so-called retail apocalypse.

Retailers are slashing investment, putting projects on hold, and culling through other expenses but even as social distancing slows the virus, there’s something cryptic about retail’s future. It’s tied to a war on an invisible enemy that could change consumer spending patterns permanently.

When visiting crowded malls could be dangerous with subsequent waves of the pandemic likely (until we find a vaccine), the prospect of shopping in stores isn’t something many consumers will be running to try out again any time soon.

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