Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Retail Apocalypse Heats up: Store Earnings fall by 25%

The retail apocalypse is worse than we thought; operating earnings at brick and mortar retailers fell by 25% according to the retail analysts at HRC Advisory. The results; published in Chain Store Age, indicate that online retailers led by Amazon are doing to serious damage to brick and mortar emporiums.

HRC studied 11 department store and luxury retailers; and 22 specialty apparel and beauty chains, to arrive at the result. Disturbingly recent headlines in Chain Store Age lead credence to HRC’s findings.

Aeropostale is Bankrupt

The once hip mall-based clothing outlet Aeropostale filed for Chapter 11 Bankruptcy protection on May 4, Chain Store Age reported. The bankruptcy will involve a restructuring that will close 154 stores, and a complete exit from Canada.

Aeropostale will close 113 of its US stores and all 41 of its Canadian stores in an effort to cut costs. This will reduce Aerpostale’s American footprint to 626 stores. The company also operates 25 P.S. from Aeropostale stores.

The move came about three weeks after the New York Stock Exchange suspended trading in Aerpostale’s stock because the price was too low. To make matters worse; the value of Aeropostale’s debts now exceeds its assets. Chain Store Age reported that Aerpostale’s assets were worth $354 million, but its debts were $390 million.

Worse carnage could come because Aeropostale is considering more store closings. One has to wonder if mall based retailers are capable of surviving in today’s environment.

Sports Authority is dead

Sports Authority is now completely dead. The ailing sporting goods retailers’ lawyer told a bankruptcy court that the company will shut down; and liquidate its assets in a bankruptcy auction, scheduled for May 16.


That means the Denver-based chain could close the rest of its 450 stores, CNN reported on May 2. Sports Authority; the chain formerly known as Gart Brothers, was already in the midst of closing 140 stores as part of a bankruptcy reorganization.

There was some speculation in the press that Sports Authority’s archrival; Dick’s Sporting Goods (NYSE: DKS), might bid on the closed locations. If Dick’s stays away from the auction; the chain will disappear completely into liquidation much as Hancock Fabrics did.

It is not clear if Dick’s has the money to buy the remains of Sports Authority: on January 31, 2016, the chain reported a net income of $330.39 million and a free cash flow of $431.58 million. That was in spite of revenues of $7.271 billion.

Get Ready for Retail Summer of Death 2016

Dick’s only had $118.94 million cash and short term investments and $643.51 million in cash from operations on January 31. Like many retailers; the chain has very little float, which explains why the retail apocalypse is accelerating at such a high speed. All Amazon (NASDAQ: AMZN) has to do to send a chain like Dick’s spinning off into the death spiral, is take 2% or 3% of its business. Margins are so low, chains cannot survive even  limited competition from the Everything Store.

It looks like America’s retailers are getting set for a Summer of Death 2016, with chains dying right and left. Likely to join Aerostopale and Sports Authority in the retail graveyard are Office Depot (NASDAQ: ODP), and almost every mall clothing retailer.

The retail wars are far from over; but it appears that Amazon is winning. Weaker retailers are dropping like flies; driving more and more market share to the Everything Store. My guess is that the process will accelerate as even more brands simply collapse.