Is the US retail industry bubble about to burst? The total number of US stores declined last year for the first time in almost a decade. Closings strongly outnumbered openings. Struggling retailers shut down more than 6,300 stores in 2017, according to the advisory firm BDO. The trend was worst among specialty apparel stores and department stores located in shopping malls, it said.
Already in the first two months of 2018, nearly two dozen retailers announced plans to close more than 3,600 stores this year and three sizeable retail bankruptcy filings occurred.
Moody’s reported that 13.5 percent of its retail and apparel portfolio was distressed as of the end of 2017. This was not far off from levels during the Great Recession (16%).
Big chains in the US have been filing for bankruptcy at a record rate as sales in the troubled sector continued to plunge. This year even more retail outlets are scheduled to shut their doors for good.
Analysts say many brands won’t survive, adding that hundreds of suffering malls are on the verge of closing. Half of all malls across the US are expected to close by 2023, experts predict.
A report from Moody’s predicts that US retail bankruptcies will peak this month, and weaker brands will continue to struggle.
BDO said: “We’ll continue to see a heavy dose of store closings in 2018.” Some economists link the industry’s decline with the rise of ecommerce outlets like Amazon.
They have made it harder for traditional retailers to attract customers to their stores, economists say. Others claim that even before the e-commerce boom, the US had too many stores. They explain that investors were pouring money into commercial real estate decades earlier as the suburbs boomed.
Meanwhile, researches show that the slowing wage growth and US household debt at record levels have led to consumer spending money in an entirely different way than before.
In 1977, clothing accounted for 6.2 percent of US household spending; now, households spend half as much (3.1 percent), according to the US Bureau of Labor Statistics. Rising consumer debt levels combined with expected interest rate hikes in 2018 may put brakes on consumer spending as consumers pay down credit card tabs, says BDO.
The collapse of the retail industry which accounts for an important share of the country’s GDP could result in massive unemployment as tens of thousands of jobs will be lost. According to data from the US Labor Department, the industry employs around 4.3 million Americans as salespeople and 3.3 million workers as cashiers. Meanwhile, consulting firm Deloitte says the US retail industry is not collapsing.
There’s no apocalypse but there is a “renaissance” of sorts going on, it has found. The firm has explained that with the shrinking of the US middle class. However, the chairman of Equity International Group and Equity Residential, Sam Zell, says retail’s struggles are still far from over. Talking to Bloomberg, he described retail as “still a falling knife.” The United States has more retail per population than any other country, which has led to “an enormous number of obsolete shopping centers,” he said.
The evidence is clear. A truly massive number of today’s stores are doomed to close in just a few years. This is inevitable and no one can stop this process.
Zarina Tsomayeva is a sociologist and business journalist working in English, Arabic, Spanish and Russian. She is from Ossetia and is based in Moscow Russia.
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