The Retail Apocalypse Gets Worse

Those who doubt that a retail apocalypse is occurring need to take a look at About Money’s list of 2015 store closings. The list indicates that 4,085 retail locations in the United States are targeted for closure.

Now here’s the frightening part: the list is incomplete. It doesn’t include the 198 locations of the entire Alco chain or all the Family Dollar (NYSE: FDO) stores that could close when Dollar Tree Stores (NASDAQ: DLTR) takes over that chain later this year.

It is also incomplete on its list of Sears Holdings (NYSE: SHLD) stores that are shutting down. The latest estimates show that Sears is planning to shutter 116 Sears, Sears Auto Center and Kmart locations. That’s in addition to the 96 stores that Sears closed last year.

Highlights from the Retail Apocalypse

Even with those omissions, the list makes for some very frightening reading. Some of the highlights of the list include:

• 280 Staples (NASDAQ: SPLS) stores are scheduled for closure by the end of 2015.

 

• 338 Wet Seal (OTC: WTSLQ) clothing stores will close.

 

• 80 Stride Rite and Keds stores owned by Wolverine World Wide (NYSE: WWW) are scheduled for closure in 2015.

 

• 650 Office Depot (NYSE: ODP) and Office Max stores are scheduled for closure by the end of 2016. Office Depot bought Office Max last year.

 

• 63 Pep Boys (NYSE: PBY) auto supply locations could close in coming years.

 

• 40 JC Penney (NYSE: JCP) stores are scheduled for closure.

 

• 14 Macy’s (NYSE: M) will close.

 

• Bottom Dollar Food, which will close 66 grocery stores.

 

 

• Build a Bear workshop will shut down 25 of its stores.

 

• 300 Deb Shops apparel stores will close.

 

• 50 Express (NYSE: EXPR) Watch and Jewelry Stores will close.

 

• 54 Golf Galaxy stores will close by the end of 2016.

 

• 50 Guess stores are earmarked for closing.

 

• 265 Body Central (OTC: BODY) stores will close.

• 200 Radio Shack locations are scheduled for closure by 2017.

 

• 180 Abercrombie & Fitch (NYSE: ANF) stores will close.

 

• 150 American Eagle Outfitters (NYSE: AEO) stores closing.

 

• 250 Aeropostale (NYSE: ARO) stores will close by the end of 2015.

 

• 223 Barnes & Noble Stores (NYSE: BKS) closing (no date has been announced).

 

The retail apocalypse is alive and well, folks, and it is getting worse. It’s also being felt far beyond the mall or the strip mall. It’s spread to Wall Street. On Feb. 2, 2015, Body Central’s stock was trading at 14¢ a share; Body Central reported a net income of -$62.51 million and a return on equity of -97.71%. On the same day Pep Boys was trading at $8.33 a share, and it reported a net income of -$3.96 million. Aeropostale’s stock was trading at $2.40 a share on Feb. 2, 2015, and the chain reported a net income of -$262.23 million on Oct. 31, 2014.

One result of this is that devastated stock values could wipe out many investors and some people’s retirement savings. Average people could suffer because of the loss of stock values, and to make matters worse, property values are threatened too.

The apocalypse is felt most at the mall; 60 malls could be on the brink of closing according to Green Street Advisors, The New York Times reported.  The Times noted that around 15% of the nation’s shopping malls have a vacancy rate of between 10% and 40%. Around 3.4% of the nation’s malls are more than 40% empty, the point at which a mall is considered dying.

What’s truly disturbing is that 20% of the nation’s malls, or around 240 malls, are now considered unhealthy, according to The Times. That means the mall could soon go the way of the downtown department store.

That indicates we could soon see a large-scale collapse of commercial real estate values. All that space could bring down prices and many of the real estate investment trusts that own commercial property.

What Is Causing the Retail Apocalypse?

Okay, so what’s driving the retail apocalypse, and how can it be reversed? Well, there is no one cause, but some major factors are as follows:

• America is over retailed. Far too much retail space was built during the boom times of the 1990s and early 2000s, particularly in fast-growing regions like the West and many suburbs.

 

• Shopping habits are changing drastically. Online retail is booming; com (NASDAQ: AMZN) saw its revenue grow by $15.12 billion between September 2013 and September 2014. Amazon’s revenue now exceeds Target’s. At the same time, Forbes reported that store traffic in September 2014 was 17% lower than the same period in 2013. The only stores seeing major increases in revenue are grocers such as Kroger (NYSE: KR).

 

• It is no coincidence that the retail apocalypse has had the greatest effect on clothing and office supply stores. Those are the two items people are most likely to buy online. Many people now go to stores to see items then check prices online. Why lug a new TV set home when you can order it online and have it delivered for free?

• Also hard hit are traditional apartment stores and chains that compete directly with the retail juggernaut known as Costco Wholesale (NASDAQ: COST). That includes Pep Boys and other tire stores. Costco’s membership club business model gives customers a strong incentive to shop at it.

 

• Finally, there is income inequality; malls that cater to upper income people are doing well, while those targeted at the middle class are struggling, Steven Lowy a co-chief executive of the mall operator Westfield Corp. (OTC: WFGPY) told The New York Times. Westfield has been selling its malls in the Midwest while keeping properties in California and the Northeast, The Times

It looks as if the retail apocalypse cannot be reversed. We will have to learn how to deal with it because it is our future.

The Scary Future

The scariest part of the retail apocalypse is that it is far from over. In fact, it seems to be just beginning. My guess is that major retailers like Target (NYSE: TGT) and Sears will soon announce another large-scale round of store closings.

We’ll probably see at least one major retailer, possibly Sears or Kmart, gone by the end of this year. Another strong possibility is that a major retailer like Staples or Sears will abandon brick and mortar all together. Others could greatly reduce their brick and mortar footprints and reinvest the money in online retail operations like Wal-Mart is starting to.The effects of this will be catastrophic, particularly on local and regional governments, which rely heavily on sales and property tax. Large-scale reductions in government services could be one result of this. Another will be higher unemployment, especially among poorly educated and working class individuals. Some communities could see depression-like conditions because of this.

We’ll have to learn how to deal with the retail apocalypse. If we don’t, many lives and communities will be destroyed by it.

Disclosure: the author holds a position in Kroger (NYSE: KR)