Market Overview

The Retail Demise: The Good, The Bad, The Ugly


It is now abundantly clear that the brick-and-mortar retail industry is trotting towards its inevitable failure. With the explosive rise of e-commerce in the past few years, through the likes of Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY),  retail giants who have been unable to adapt to the modern, digital market climate are faltering deeply.


The Good: Some still have time!


I know what many reading this article may be thinking. What could possible be good about the death of an industry (through which over $5 trillion flow every year). Contrary to popular belief, there is some good news here!


When we think of retail, a few major brand names come to thought before any of the clothing retailers like Target (NYSE: TGT) and Sears (NASDAQ: SHLD). Namely, Walmart (NYSE: WMT) and Costco (NYSE: COST). While so many retail corporations are faltering every day, the prospects of Walmart and Costco still remain bright. It is true that many have written these companies off as “too big to fail,” but the reality lies elsewhere.


Truthfully, the retail crisis has yet to reach these giants. Until now, the spreading meltdown of the industry focuses on retailers who sell items that are easily available online, like clothing and electronics. Walmart and Costco, however, have the benefit of being in the food retail business too, buying them time as perishable items as such are yet to be easily available online.


Luckily for them, corporations like this have realized their fortune and position, and have began investing to digitalize the rest of their business before the crisis hits them too.


The Bad: Frightening statistics and projections


The inevitable demise of the retail industry has taken a sharp downturn in 2017. Within the first 4 months of 2017 alone, in reports from the Visual Capitalist, 14 retail corporations have already filed for bankruptcy. This number is shockingly close to the number of total retail bankruptcies in the entire year of 2016, at 18 corporations.


Along with these bankruptcy filings, the number of store closures have dramatically risen too. Payless ShoeSource recently released a statement declaring that they would close 378 stores in an attempt to cut costs to stay relevant in the retail space. However, according to reports from Bloomberg, the number of store closures for Payless alone is expected to rise to 1,000 stores by the end of 2017, which is nearly 20% of its store ownership!


Based on a report by Credit Suisse, this number would account for nearly one-eighth of the total projected store closures in 2017, which is expected to be around 8,600 stores.


What’s even more frightening for the industry? In 2008, during the height of the financial crisis in the US as well as in various economies around the world, only 6,200 stores were closed. In other words, 2017 could be worse for the retail sector than a global economic meltdown.


The Ugly: Sears Holdings (NASDAQ: SHLD)


Amidst this financial and corporate chaos, Sears Holdings (NASDAQ: SHLD) has stood out especially. During the past four years, the retailer’s revenues have fallen, its losses have deepened and various indicators regarding the corporation’s indebtedness, such as the Debt-to-Assets ratio, have risen to frightening heights, well above industry averages. Furthermore, the liabilities on the business continue to pile up, with the number of resources at the management’s disposal for restructuring are diminishing day by day.


Where’s the ugly in this? Isn't it just the standard company heading towards bankruptcy? Well, as this chaos continues, Sears CEO Eddie Lampert has decided to blame the media for the company’s steady demise. Indeed, turning a blind eye to the rest of the industry, as well as the company’s own incapability to modernize to today’s business climate, in a recent interview Mr. Lampert claimed that the “irresponsible” media was “unfairly singling out” the retail giant. Lampert also attacked the media claiming that their goal is to “scare [their] vendors.”


However, while leveling such accusations, one must consider the timing of these statements by Lampert. It is true that in recent times business news outlets have turned their attention to Sears’ business, criticizing its operation and management. However, that is only in recent times. Sears has attracted this attention after years of steadily declining revenues and deepening losses, and new outlets have mentioned the company now, when the rest of the industry is faltering too.


These accusations come just weeks after the company announced that it has “substantial doubts” about its survival in the market. Within the last 12 months, Sears Holdings has lost over 42% of its value on the stock market, with its market cap falling below $1 billion recently.


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