More Problems for Retail

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The retail sector is vital to the health of the U.S. economy, and we felt the myriad of problems plaguing the sector would generate more attention in 2018, and unfortunately, we’ve been see more of those problems in the media.

One of the key issues not getting attention in prior years, we felt, was the impact that store closing would have on the real estate sector. Back in April, Bloomberg Business validated our prediction with an article titled, “The Retail Real Estate Glut Is Getting Worse:  Stores have announced the closing of 77 million square feet of shopping space so far this year.”

The article included a chart of the combined square footage lost from store closings going back to 2008, and the trend is bad. In just four months (when the article was published), 2018 has eclipsed full-year results for every year except 2017 and 2008. Keep in mind: 2008 saw a financial collapse of Lehman Brothers and other big finance — so a significant year. 

And yet. the difference between a full year in 2008 and four months in 2018 us less than 11 million square feet. We’re certainly on track to surpass 2008’s total and could eclipse 2017, which is only 2.8 million higher than April’s losses.

The idea that all stores are going to go away, due to Amazonification, is not likely to happen in the near term. After all, even Amazon, Warby Parker and others have been opening brick-and-mortar store locations. 

That said, the premise that the underlying value of real estate holdings may be more valuable than the retail chain itself may no longer be true — or no longer true to the same extent, in an era of so-called zombie malls.

The reason: lease values, which are dropping to keep current clients or to entice new ones, are having a downward pressure on the valuation of retail’s real estate portfolios. That serves as a disincentive for investors to put less pressure on retail stores to shut shutter more stores.

Another problem, according to the Wall St. Journal: “Retail’s Other Problem: Too Few Clerks in the StoreMacy’s, J.C. Penney and others have cut jobs even more than they have closed stores” Even while operating the same number of stores, Macy’s has, according to the Journal, “shed 52,000 workers since 2008.”

What that means is if you thought service at retail locations has dropped over the past 10 years, you’re actually right! While some of that may reflect new ways consumers shop as well as new store concepts, which are typically smaller or operate with more layers of tech, lower headcount will make it difficult for customers to find a level of service they expect.

“If brick-and-mortar retailers can’t compete on price in an online environment, the only thing that allows them to survive is to provide a positive in-store experience,” said Stuart Appelbaum, president of a retail union.


And that may cause more people to abandon other bricks-and-mortar locations, furthering the downward spiral of one of the largest U.S. industries. 

We certainly hope that this doesn’t come to pass.  Let us know what you think.

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