In a previous article we spoke about how the entire equity market is simply one big bubble, as denoted by Tesla suddenly becoming America’s most valuable car company despite the fact they never make a profit. And then we followed up with a segment on Amazon.com and how it’s share price is four times that of Apple despite earning 10 times less per year.
Now we will look at the bottom end of the spectrum, and the historic decline in the retail sector. On April 6, the Fitch rating agency published a new report on 8 potential retailers who may declare for bankruptcy in the coming months, following in the footsteps of Payless Shoes who did so in March.
Fitch’s expectation of increasing retail defaults stems from increased discounter (including off-price and fast-fashion apparel) and online penetration, and shifts in consumer spending toward services and experiences. All of these factors have created a highly competitive retail environment and accelerated mall traffic declines. Retailers have also suffered from the ebb and flow of brand popularity. Negative comparable store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.
Going back to Payless, the company was listed on Fitch’s Loans of Concern list, which is a compilation of issuers with a significant risk of default within the next 12 months. And, just to make the tracking of future defaults easier, Fitch also provided the list of eight other retailers with term loan debt totaling nearly $6 billion, which are also its concern list, and are most likely to be in default in the not too distant future. They are as follows:
Sears Holdings Corp (roughly $2.5 billion);
99 Cents Only Stores LLC;
Charming Charlie LLC;
Nine West Holdings Inc.;
NYDJ Apparel LLC;
rue21, Inc.; and
True Religion Apparel Inc. – Zerohedge
Most of these retailers on Fitch’s watch list are niche outlets that rose in popularity prior to the 2008 financial crisis. And this is on top of one of the most famous New York retailers, FAO Schwarz, closing their doors in 2015 after being in business since 1862.
The world is changing in a number of ways, and in the spectrum of retail it is not for the better. And as more people find themselves unable to afford to shop for discretionary items thanks to low wage jobs and rising price inflation, the above list of stores will find even more participants joining them before the collapse of brick and mortar retail finally comes to an end.
Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.