There isn’t much awareness or planning for what’s being referred to as a retail apocalypse, which could have a considerably negative impact on areas of the U.S. economy. Risky retail debts are set to be due with other potentially destabilizing debt loads in the few years ahead, and local economies look as though they’ll be hurt by the loss of retail jobs and reduced tax bases.
The last time I heard the data, the Federal Reserve said that I think somewhere around 15 percent of at least certain aspects of the means of production (land, factories, equipment) were sitting idle in the U.S. That isn’t because there’s a lack of work that needs to be done. On the contrary, there’s plenty of work that needs to be done — which can be easily seen by merely looking around at crumbling infrastructure of cities — and there are people who would like to do it. The economic system isn’t putting those together, however.
And to me, all those malls sitting idle is ultimately a wonderful example of how inefficient the corporate state capitalist system is. If those malls are no longer functionally productive, they should be used by the communities that have often been hurt in neoliberal globalization. They could use the facilities and land to do productive work themselves, and beyond that, the workers could have actual ownership stakes in the enterprise, so that the typical capitalist top-down structure of employer and employee is altered. I say that because how the economic system functions now isn’t working real well for most people, and introducing actual democratic measures into where people work (and spend much of their time) is a way of changing that for the better.
The so-called retail apocalypse has become so ingrained in the U.S. that it now has the distinction of its own Wikipedia entry.
The industry’s response to that kind of doomsday description has included blaming the media for hyping the troubles of a few well-known chains as proof of a systemic meltdown. There is some truth to that. In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year.
But chains also said 6,800 would close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.
Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.
Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.
The coming wave of risky retail debt maturities doesn’t take into account that companies currently considered stable by ratings agencies also have loads of borrowings. Just among the eight publicly-traded department stores, there is about $24 billion in debt, and only two of those—Sears Holdings Corp. and Bon-Ton Stores Inc.—are rated distressed by Moody’s.
“A pall has been cast on retail,” said Charlie O’Shea, a retail analyst for Moody’s. “A day of reckoning is coming.”