Attention Shoppers, The Store Is Now Closed

Topic: Pearls of Wisdom

Devin Crago CFA

June 7, 2017

Image used with permission: iStock/bizoo_n


Print & Share

Print

Attention Shoppers, The Store Is Now Closed

Four thousand. That’s the approximate number of retail store closures in the U.S. in 2016.

While last year’s number might seem large, some industry observers think things will get twice as bad this year, with more than eight thousand store closures anticipated in 2017.1

Not only are stores closing at a frenzied pace, but the number of full-fledged business bankruptcies has also been on the rise. Thus far in 2017 more than 20 retail companies have filed for bankruptcy protection.2 Among them are well-known brands including Payless Shoes, BCBG Max Azria, and The Limited. These join other mall stalwarts like Aeropostale and American Apparel that entered bankruptcy last year.

To be sure, there are likely even more casualties on the way. Unfortunately, these “casualties” aren’t just the physical stores themselves; according to The Economist, between January and May of 2017, the retail industry has shed a whopping 50,000 jobs.1

With these facts in mind, it probably comes as no surprise that the current massacre in American shopping has earned the unenviable moniker “The Retail Apocalypse”.

Why is there so much disruption in bricks-and-mortar retail? The most common answer to that question is simply: “Amazon”. That company’s success in the world of e-commerce is, by most measures, remarkable. And to most observers, that success reflects the shift in habits of American consumers to spend more of their money online, at the expense of traditional mall-based retailers. Why bother trudging to the mall when you can order what you want from your mobile phone?

In addition, American shoppers are choosing to spend more of their disposable income on “experiences” like dining out rather than “things” like clothes. Consider, for example, that 2015 marked the first time in history that U.S. consumers spent more on food at restaurants and bars than they did at grocery stores.3

Another issue for retailers is simply that there are too many malls in America. That’s the contention of Sandeep Mathrani, the CEO of GGP, the second largest retail real estate owner in the U.S. He estimates that in order to match the new, lower demand for bricks-and-mortar stores, 30% of all American malls will need to close their doors for good.1

In its 2016 annual report, GGP provided some compelling facts behind this argument that there is just too much supply of shopping space in America.

The U.S. has close to 8 billion square feet of retail, or 24 square feet per person… Other developed countries have far less retail real estate per capita, such as Canada with 16 square feet per person, Australia with 11, the U.K. with 5, France with 4, China with 3 and Germany with only 2 square feet of retail per person. Our country is over-retailed; or, as I like to say, “under-demolished.”

Looking at these numbers, it’s difficult to rationalize why an American shopper might require five times as many shopping malls as a British shopper. If indeed they don’t, expect more retailers to join the ranks of the walking dead in America’s retail apocalypse.

1 The Economist, “Sorry, we’re closed”, May 13, 2017.
2 The Wall Street Journal, “Why Banks Haven’t Been Burned by Retail’s Meltdown”, May 28, 2017.
3 American Enterprise Institute, http://www.aei.org/publication/chart-day-retail-sales-grocery-stores-vs-restaurants/, March 5, 2015.

More Like This...

See another CRM2 blog post that may be of interest to you.

CRM2: The Nexus Approach to our CRM2 Reports

Topic:
CRM2
Excerpt:
With changing securities regulations coming into effect, investment firms are now required to provide individual investors with specific additional in

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

Charitable Giving Made Easier

Topic:
Foundations & Endowments
Excerpt:
Giving to charities and supporting our community are important to us at Nexus. We donate a portion of our management fees back to the charities and

More Like This...

See another Human Interest blog post that may be of interest to you.

The Case for Openness – An Open and Shut Case?

Topic:
Human Interest
Excerpt:
From time immemorial, mankind has been open. Open to new ideas, open to trade, and open to migration – the three critical ingredients for progress.

More Like This...

See another Inside Nexus blog post that may be of interest to you.

Au Revoir

Topic:
Inside Nexus
Excerpt:
As you may be aware, my time at Nexus is coming to a close. Over the last number of months, I have been working closely with others at the firm to

More Like This...

See another Investments blog post that may be of interest to you.

Say “No” to Absolute Safety

Topic:
Investments
Excerpt:
My colleague Harsh Narsinghani and I were recently discussing how many of our clients were unnerved by geopolitical and economic worries and how it

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

“Work, Work, Work, Work, Work, Work”

Topic:
Pearls of Wisdom
Excerpt:
This has been a busy year. I’ve had lots happening on the home front (a wedding!) and lots going on at the office (too long to list!) Managing work

More Like This...

See another Tax Planning blog post that may be of interest to you.

Capital Gains, Charitable Acts, and the New Alternative Minimum Tax

Topic:
Tax Planning
Excerpt:
If you regularly make charitable donations or perhaps sit on the board of a charitable organization, you might be wondering what all the hubbub

More Like This...

See another Wealth Planning blog post that may be of interest to you.

The Case for An Annual Family Roundtable

Topic:
Wealth Planning
Excerpt:
Not long after I joined Nexus, Bill Berghuis imparted some good advice that has stuck with me

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

Charitable Giving Made Easier

Topic:
Foundations & Endowments
Excerpt:
Giving to charities and supporting our community are important to us at Nexus. We donate a portion of our management fees back to the charities and

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

Worth 1,000 Words

Topic:
Human Interest
Excerpt:
A little humour makes the world a better place.

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

Where Have All the Boutiques Gone?

Topic:
Inside Nexus
Excerpt:
Many small, once independently managed, firms have fallen into the clutches of larger organizations such as banks, institutional money managers and

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

From Vineyards to Portfolios: Cultivating Long-Term Wealth

Topic:
Investments
Excerpt:
My wife and I have been stymied so far this summer in getting to the Niagara region for our annual weekend of cycling through the vineyards and

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

Pearls of Wisdom

Topic:
Pearls of Wisdom
Excerpt:
Reading is one of the principal occupations in our profession. As we digest a wide range of material, interesting ideas and surprising facts – some

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

Capital Gains, Charitable Acts, and the New Alternative Minimum Tax

Topic:
Tax Planning
Excerpt:
If you regularly make charitable donations or perhaps sit on the board of a charitable organization, you might be wondering what all the hubbub

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

From The Editor: No Time Like the Present

Topic:
Wealth Planning
Excerpt:
I recently heard one of my favourite quotes about planning. It can come in various versions, but to paraphrase, ‘The best time to start planning was