June 12, 2017
US retail sales rose by 4.5% in April compared with the same month last year.
Meanwhile the US Commerce Department reported that online shopping boomed in April, climbing 11.9% year-on-year.
The Dow is up over 15% since the nauseating result on November 8.
The employment figures are the best in a decade.
In my own industry segment, Contemporary Apparel, the first half of the year has seen the most positive trade show results with the strongest attendance since the Great Recession.
Consumers are spending again at a rate not seen since before the GR.
Everything’s coming up roses, right? Wrong. Bricks and mortar retailers are closing at a rate that one online article described as “The Retail Apocalypse”.
Let’s start at the top.
The current and future contractions of the department stores and major chains are being well documented in the press.
USA Today reported last week that according to Moody’s:
“The list of U.S. retailers with troubled financials that could make them potential bankruptcy risks now totals 22, according to ratings by Moody’s Investors Service — topping the 19 recorded at the peak of the Great Recession.
And the worst could be yet to come. The ranks of distressed firms and retail sector defaults are likely to grow during the next 12 to 18 months, the rating agency predicted in a separate report issued Wednesday.”
Names on the list include Neiman Marcus, Sears, TOMS Shoes and Vince. Disturbingly many of the companies are either apparel and accessories sector retailers or they have significant apparel floor space.
Like JCPenney, some companies bounce back from the list. However, their participation is usually mentioned in the first line of their obituaries.
Macy’s and Nordstrom continue to disappoint. Macy’s has under-performed consistently for an extended period. The previously steady Nordstrom has seen a 21% drop in it’s stock over the past 3 months.
The iconic Macy’s is almost done. The headline on The Street website this morning is blunt: Sears Is Going Down in Flames So Look Out, It’s Going to Be Messy.
There is no indication that Nordstrom is anywhere near Macy’s territory. Being a more contemporary and nimble organization with heavy participation by the Nordstrom family, it should find it’s way through.
However, the days of the many tentacled retailer as we have known them are coming to an end. I set down my thoughts on this issue in a blog 12 months ago: It’s the End of the Department Store as We Know It? It Better Be
But it’s not just the top-heavy weights that are bearing the brunt. Yes, we have better 
results for some smaller retailers. I was even told by an apparel agent that they met with new small local retailers for the first time in years in their showroom during last week’s Los Angeles Fashion Market Week. However, the numbers show massive store closures occurring across the country. The conversations I have almost daily with small independent store owners reveal ongoing pain at street level.
On April 10, The Washington Post got straight to the point in an article, More retail stores have closed in 2017 than at the same point in 2008:
The bad news for the retail industry is coming fast and furious these days. Big names are shuttering stores or going out of business.
Add it all up and more than 2,880 retail stores have been closed this year to date, a pace that is running ahead of the same point during 2008’s recession, according to a recent Bloomberg report. What’s worse is that the future isn’t looking any brighter.
The “bubble has now burst,” Urban Outfitters Chief Executive Richard Hayne told analysts. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”
There are no prizes for guessing why. Internet shopping. Specifically Amazon, as the WaPo explains:
One factor is, not surprisingly, Amazon. The online giant has taken away significant sales from malls and chain stores. (Amazon.com Chief Executive Jeffrey P. Bezos owns The Washington Post). “The Seattle-based company accounted for 53 percent of e-commerce sales growth last year, with the rest of the industry sharing the remaining 47 percent, according to EMarketer Inc.,” Bloomberg reports. But there’s another thing going on: too many stores have been built and that’s caused an overall glut in retail space. The U.S. has far more square footage devoted to retail per capita than any other country – six times the amount of our European and Japanese counterparts.
So there you have it. The bricks and mortar of US retail sector are being involuntary torn down into a space relative with the rest of the world (not that your average American would care). We should be beyond the days of buy, buy buy, spend, spend, spend. The future is sustainability in all things. Consumption being one of the most crucial.
From what I see and hear there is a natural correction underway. The Millennials and younger aren’t big spenders on stuff. They spend their money on experience. Every week, I am hearing of a new festival to attend or how much they want to travel (unlike the majority of their forebears) or how they are doing anything but shopping. Thankfully, they are leaving behind the desolate concepts of “retail therapy”, “mall as destination” and Malcolm Forbes’ grotesque “He who dies with the most toys wins”.
But what does all this mean for the future of the retail sector in particular and the economy in general? What are the alternatives to the dangerous myth that consumer spending drives the economy? What role is technology playing?
The Atlantic addressed some of these questions in April in the excellent article: What in the World Is Causing the Retail Meltdown of 2017?
The nub of the matter is that despite the better retail sales numbers, there is not enough cash to go around to the oversupply of retailers. Add to this the technological and spending preference changes that are allocating resources elsewhere, and you have the very peculiar situation in which we find ourselves – massive retail store closures in a period of economic upturn.
A fundamental adjustment in the US retail sector has been underway since the Great Recession. I believe it will continue well in to an unpredictable future.
Paul Brindley
Principal Adviser