The reality of the Retail Apocalypse is no longer in doubt, 2017 has become the worst year for store closings in the United States possibly since the Great Depression.
Between New Years’ Day and October 2017, more than 6,700 stores closed across America, the retail think tank Fung Global Retail & Technology concluded. This makes 2017 the worst year for retail closings on record, it is already worse than 2008 when 6,163 stores closed, CNN Money reported.
This means that the retail crisis facing America’s main streets and malls is worse than the Great Financial Meltdown of 2008. Those numbers are as bad; or worse than anything seen during the Great Depression of the 1930s.
The Retail Apocalypse comes to Walgreens
The latest big-name retailer to start shuttering locations is Walgreens (NASDAQ: WBA) which plans to close 600 stores. The closings are part of the deal, WBA made to get the Federal Trade Commission to approve its acquisition of 1,932 Rite Aid (NYSE: RAD) stores.
Walgreen plans to close all Rite Aid locations that are in close proximity to its existing stores. Many more Rite Aids are likely to close because that chain operated 4,621 stores in June 2017. Many of the stores are supposed to be sold to a smaller drugstore operator Fred’s (NYSE: FRED).
Since Fred’s reported a loss of -$126.84 million and revenues of just $2.087 billion on July 31, 2017. It is clear that company lacks the money to operate all those drugstores. So expect far more closings at Rite Aid, perhaps most of the chain will simply shut down.
Rite Aid and Walgreens have been hit hard by aggressive competition from Kroger (NYSE: KR), Walmart (NYSE: WMT), and Costco Wholesale (NASDAQ: COST) in the pharmacy sphere. Each of those discounters has been using prescriptions as a loss leader to drive grocery and dry-goods sales.
To make matters worse, both chains now face aggressive competition from Amazon (NASDAQ: AMZN) in toiletries, makeup, cleaning supplies, and nonprescription drugs. Some news reports indicate that Amazon is moving to enter the pharmacy space as well.
The Retail Apocalypse is about to Get Far Worse
It is hard to believe but the apocalypse will get far worse by the end of the year. The best case scenario is that 7,000 stores will close this year, but that is unlikely.
The actual number of closings might be 8,600 or even 9,000 stores, Credit Suisse analysts predicted in April. This number seems probable because around 670 stores a month have closed since January. I arrived at that figure by dividing 6,700 by 10. If store closings stay at the current pace around 8,040 locations will shutter.
There is a strong possibility that the actual number of store closings might exceed 10,000. Such a number is possible because analysts like Credit Suisse may not be counting franchisees and mom and pop stores that will also be going under.
In many cases, the closure of a corporate store kills a small business located next door. The shuttering of a large department, discount, or grocery store can cause several neighboring businesses or an entire mall or shopping center to close. This occurs because the big brand name and its’ advertising are no longer attracting customers to the area.
The pace of closings will accelerate if brick and mortar retailers have a bad holiday season. If they have a bad one – which is likely; all bets will be off. A probable scenario is that several struggling retailers such as Toys R Us, Fred’s, JC Penney (NYSE: JCP), and The Bon Ton Stores (NYSE: BNTN) will declare bankruptcy or simply fold up in January.
This might happen because a lot of retailers are engaging in mass hiring for the Christmas season. If the holiday sales do not materialize they won’t have the revenue to pay those employees which is a recipe for bankruptcy.
To make matters worse a lot of those retailers have borrowed the money to pay those employees. That means they will be saddled with loans they cannot pay off in 2018. This will lead to more borrowing or desperate cost-cutting measures such as store closings in an effort to raise funds for loan payments.
The Retail Apocalypse is about to get Worse
Other retailers like Macy’s (NYSE: M) are likely to close large numbers of locations in order to make up for the holiday season or pay off all the additional borrowing.
Therefore 10,000 store closings nationwide by New Year’s Day 2018 is a real possibility. That will almost immediately be followed by 2,000 or 3,000 more closings in the first quarter of 2018.
There will be obvious political ramifications; including demands for the breakup of or penalization of Amazon. Jeff Bezos will make an obvious scapegoat – particularly if he keeps his position as world’s richest man. It will also cause some job loss on Capitol Hill as voters blame the party in power; namely Republicans, for the mass employment.
One person that might face job loss because of this is U.S. Speaker of the House Paul Ryan (R-Wisconsin) who is likely to get a new job as minority leader. Also likely to be swept away is current minority leader Nancy Pelosi (D-California) who will probably be pushed aside by younger, more radical Democrats.
There is one certainty about the Retail Apocalypse – the worst is yet to come. Investors that understand that reality will make money, those that do not will lose it.