This is a story that I am following closely because I believe the tentacles of it are far reaching.
Most are aware that the retail space is going through massive changes. eCommerce has obliterated the brick and mortar stores for years. The term "Retail Apocalypse" is common these days yet I first heard about it in 2013. At that time, few were paying attention to the impact that the likes of Amazon were having.
Today, everyone is well aware of what is taking place.
COVID-19 looks like it will be fatal to much of the traditional retail sector. What was a bad situation is now getting much worse.
Coresight Research group updated their 2020 forecast pertaining to the number of store closing. In their view, we could see 25,000 retail locations shuttered by the end of the year. This is a number that surpasses the other estimates.
Last year was a bad year with the number of closings registering 10,000. This will more than double what we experiences in 2019. At the same time, the new projections are a 5,000 store increase from the forecast at the start of the year.
The belief is that COVID-19 is pushing many stores over the edge. It starts with the anchor chains in the malls. We already saw a number of companies filing for bankruptcy, meaning they are closing down locations. At the same time, department stores such as Macy's and Dillards are facing financial turmoil. These stores are often the ones that pull the traffic to the malls. When they go out, the smaller retailers face a decline in their business.
Of course, if we follow the path of things, the mall owners are also taking a hit. Last month, Simon Property Group sued the Gap store for failure to pay rent. The total was more than $80 million that the chain withheld from the landlord.
There is the likelihood that we see more than 10 million jobs in the retail sector never return. While the country is opening back up. many chains are going to be closing down stores. This is not a positive for the workforce.
Another area that is rarely discussed yet is equally as important is the strain this puts on suppliers. Many small-to-medium sized businesses depend upon the retail sales channel to get their products sold. With so many stores closing, these businesses see a major reduction in their sales.
And so the bouncing ball goes.
One of the biggest problems that retailers might be facing is simply a change in buying habits. While this was occurring on a slow scale, it was accelerated during the pandemic. The time spend locked down caused people to start shopping online to a much larger degree. Will we see many of these people continue to do this instead of returning to the malls of America?
I think that a likely outcome, at least to some degree.
The impact of all this is surely to be great. Most people employed in retail are at the lower end of the spectrum. They can ill-afford to lose their jobs. Also, younger people and working families needing another job often use this sector to create some additional income.
It looks like all of that will be lost.
Ultimately, all of this falls under the heading of "creative destruction". The retail sector is being reworked to the point where it is more efficient providing more options. Unfortunately, for those who staked their futures on the old model, life is getting very painful.
Like the oil sector, we are going to see massive defaults in the arena. This is going to hit the markets hard when these companies start to drop like flies.
If 25,000 is the number of stores that do close in 2020, it will be a very hard year.
The frightening part of this is the fact that it is something people notice. It is hard to hide empty storefronts. That only adds more to people's negative sentiment.
As always, there is a cycle to all this and it is crucial to understand where it is all going. For retail, there is not a great deal positive to state.
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