Photo by Benedikt Geyer on Unsplash

Store Closures Set For A Record Pace

It’s April 22, 2019, and we’ve already announced more store closures than the entire year of 2018. Last year there were a total of 5,864 store closings according to the WSJ.

In 2019, the retail industry has closed 5,994 stores so far, and we’re only in the month of April. If retail stores continue to close at the current rate, we could see a record high of 12,000 store closures for the year.

Store Closures Amass

Stores continue to suffer losses due to low revenues. Perhaps the consumer debt I mentioned before is starting to show that consumers are massively slowing down on their spending.

For example, Pier 1 Imports reported that it lost $66.8 million in three months, with sales declining 19.5% from the previous year. As a result, the company plans to close at least 45 stores and potentially up to 100 more.

“In a fiscal fourth-quarter earnings report released Wednesday, Pier 1PIR, -25.67% said it lost $68.8 million in three months, with sales declining 19.5% to $412.5 million from the previous year. “

MarketWatch

However, it’s not just loss of revenue that is impacting retail performance; some retail stores are closing due to higher rent costs. For example, Bed Bath & Beyond are expected to close 40 stores but also reopen 15 additional new stores sometime this year.

Unfortunately, it’s possible that Bed Bath & Beyond may end up closing more stores unless they’re able to negotiate more favorable lease terms with their landlords. Rents are not rising only in the residential sectors but also in the commercial areas, putting more pressure on businesses.

Is the Economy Getting Weaker?

With a record number of store closures, one can conclude that the economy must be getting weaker rather than stronger. Starting from the questionable jobs numbers, the record store closures, and all-time consumer debt, it’s no wonder President Trump is asking the Fed for more QE and rate cuts.

However, the Fed’s stimulus is what led to this problem in the first place. The low rates encouraged consumers to borrow on credit for present-day consumption, and the consumer spending sent businesses a false flag on the strength of the economy. As a result, companies began to borrow money to increase their inventory in anticipation of spendthrift consumers.

Unfortunately, the consumers never came, and business inventories began to stockpile up. At some point, businesses will be forced to lower the price of their goods or sell them at a loss. Furthermore, store closures will only accelerate if the business inventories-to-sales-ratio continues to rise.

There are signs that the economy is structurally weak. Moreover, the economy is continuing to moving along as usual. However, many of these companies have been borrowing a massive amount of money to stay afloat.

So at some point, something has to give. Perhaps billions of dollars will be defaulted on due to a significant bankruptcy, a bankruptcy so large that the financial institutions won’t be able to absorb, similar to what happened in the crash of 2008. Regardless, the record pace of retail store closures is not a positive sign of a healthy economy.

Facebooktwitterredditpinterestlinkedinmail

Leave a Reply

Your email address will not be published. Required fields are marked *