Right now, retail stores are closing at a pace that we haven’t seen since the 2008-2009 financial crisis. Some are calling it a ‘retail apocalypse’ as a number of major headwinds approach, including increasing pressure from Amazon and the sad fact that most brick-and-mortar retailers simply built way too many stores and borrowed too much money to do so.
Though many are likely aware of the above, what isn’t so well known is how much debt is coming due starting next year. That’s really the heart of the issue, which is why America’s ‘Retail Apocalypse’ Is Just Getting Started, Bloomberg’s Matt Townsend explained to Financial Sense Newshour on today’s podcast.
Debt Is the Main Challenge Retailers Face
Though online retailers are definitely a threat and many traditional retail businesses are overstored, what’s really going to drive the shakeout of legacy retailers is debt.
“What really drives a company out of business is, if they have a lot of debt and their business is deteriorating, that will force them into bankruptcy and potentially liquidation,” Townsend said.
And the fact is, a lot of this debt is starting to come due next year, Townsend stated, and many retailers may not to be able to pay it off or refinance it.
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary. (source)
A (Sale) Sign of the Times
The problem is widespread, and likely to grow, possibly to crisis levels.
“Any retailer that you can think of — that maybe you grew up with — is, for the most part, in some form of distress or struggling,” Townsend said.
