Retail Apocalypse? Deflationary Collapse?

Through the third quarter, 6,752 locations were scheduled to shutter in the US according to the International Council of Shopping Centers. That's more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis.

Bloomberg writers Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon claim America’s ‘Retail Apocalypse’ Is Really Just Beginning.

Delinquent Loans

Problem is Debt

Don't blame this on Amazon. The authors note the "root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains."

Actually, the root cause is the Fed cheapening money and making all this building and junk loans possible.

Regardless of the reason, an explosive amount of debt is coming due in the next five years just as credit markets are starting to tighten.

Too Late to Party

"One testament to that negativity on retail came earlier this year, when Nordstrom Inc.’s founding family tried to take the department-store chain private. They eventually gave up because lenders were asking for 13 percent interest, about twice the typical rate for retailers."

Concentration of Retail Jobs

The report concludes “A pall has been cast on retail,” said Charlie O’Shea, a retail analyst for Moody’s. “A day of reckoning is coming.”

Here are some charts I created on Fred to consider.

All Employees Retail Trade

Department Store Employees

Average Weekly Hours Retail Trade

Nonstore Retail Employees

Day of Reckoning

Yes indeed, a "day of reckoning" is coming and it's not just retail.

The day of reckoning includes a stock market bubble, a junk bond bubble, real estate bubbles, a public union pension bubble, and far down on the list of importance, a bitcoin bubble.

Deflationary Trends

These are extremely deflationary trends. So is the demographic setup, so is debt in general, so are all all of the bubbles mentioned above. Also note that the coming revolution in self-driving vehicles will put millions of drive-for-a-living employees out of a job.

I confidently conclude another major round of deflation is coming up. Curiously, the Fed (central banks in general) fueled this very result with their deflation fighting tactics.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

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Mike "Mish" Shedlock

"the coming revolution in self-driving vehicles will put millions of drive-for-a-living employees out of a job"

@mish, both of us have been assured the revolution won't arrive for decades so nothing to see here, move along...

Do warehouse fulfillment jobs count as retail job? I can’t seem to find an answer to that question. Here in Central Ohio, fulfillment positions have grown by the thousands. Amazon alone has over 2,000 new jobs since 2016. Kroger’s and The Limited along with other retail have created more fulfillment jobs in Central Ohio than brick and mortar stores have lost.

Retail sales have not gone down, so obviously we are just changing how we buy our goods.

E-Commerce as a Jobs Engine? One Economist’s Unorthodox View

DOH! my answer is in the graphs, just over looked it.

i'm no expert, but what if we are in a phase like where the dow went from 1000 to 10000, and now we are on the way to 100,000? calculated risk has been correct with all his predictions about the economy and he says there is no bubble in house prices and while he rarely comments on stocks, he made a post recently that he expects it to keep going up as the economy is in a period of expansion.

seems the highest concentration (percentage, which is something of a misdirect) of retail jobs is in red states or red corners of blue states. the real crisis in society is that people no longer vote in their own self interest (survival). Additionally these red states have a high percentage of government workers, and since government no longer collects taxes (albeit through sales tax, ooops) these people are going to be furloughed, the first Great Depression was just the rehearsal. Listening to a billiiionaire RE investor from NY tweet that he understands the problem, that won't help much.

Absolutely ! Brick and Mortar retail was a "dead man walking " after the last crash .The feds prolonged ZIRP policy has fueled massive malinvestment and has kept "zombie" companies afloat. It has promoted market share growth over profitability growth. Investors are subsidizing low prices as they search for yield . Companies are seeking a larger portion of a non expanding pie at the expense of diminishing margins via cheap debt. The Amazon effect is deflationary . Consumers will see limited relief however due to increasing health care costs.

I really enjoyed this report a lot, however, it is the argument from only one side of the table. There are plenty of people with big pockets that don't agree that this isn't a 12-30 month secular situation. Why would Brookfield want to spend $15 Billion + on acquiring GGP or Dan Loeb rising investors to take out MAC? It doesn't make any sense that these mall retailers would have buyers so early in the game 12 months unless it's seen as temporary. I actually don't believe the USA is over-retailed. There is a unique stat that shows sales per sq ft here is high, therefore just because there is more sq ft per person doesn't matter as much as sales per sq ft. Having said that, I did really enjoy your report, it offers a really balanced look. But I do think it's slanted too far. Time will tell :)

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