“In the post-digital era, only the strong will survive. Darwin would love this,” said one retail analyst as JCPenney, Payless, LifeWay Announce 3,000+ Combined Store Closures.
Retail job cuts for January and February total 41,201, said research firm Challenger, Gray & Christmas in a new survey, including nationwide retailers such as Payless and Charlotte Russe.
“This is significant, and marks an acceleration of store closures and job cuts in the near term,” said Mark Hamrick, a senior economic analyst at Bankrate. “Retail is ground zero for seeing the shifts of change in our lives.”
Lifeway Christian Bookstores announced last week it would be closing the doors of all 170 brick and mortar stores, in a pivot to focusing on digital and e-commerce.
“The decision to close our local stores is a difficult one,” said Lifeway Chief Executive Officer Brad Waggoner. “While we had hoped to keep some stores open, current market projections show this is no longer a viable option.”
“In the post-digital era, only the strong will survive,” Ron Johnson, CEO of Enjoy, a retail technology company, told NBC News. “You need a great brand, a strong balance sheet, and a vision for experience that commences digitally. Darwin would love this.”
Mall Vacancies on the Rise
The Financial Times notes US Shopping Centre Vacancies Rise to Eight-Year High
“US retailers have set out plans to close 5,480 stores, according to Coresight Research — almost as many as the 5,730 announced in all of 2018.”
Trump Sounds Like the French
States and Cities throughout our Country are being cheated and treated so badly by online retailers. Very unfair to traditional tax paying stores!
— Donald J. Trump (@realDonaldTrump) April 17, 2018
Save the local bookstores was the cry in France. Here’s reality.
Ok, bookstore loving friends, here is the truth:
At a certain point, buying books from the store you love is not going to be enough to keep it open.— Lexi Beach (@lexiatwork) October 9, 2018
Lexi then goes off the deep end with anti-capitalist nonsense.
The problem is not the sustainability of bookstores. It’s the immoral capitalist (is that redundant?) system we’ve all accepted as normal wherein the composition of your neighborhood is dictated by people who do not actually live there.
— Lexi Beach (@lexiatwork) October 9, 2018
Unfair Competition
Businesses that cannot compete always complain about fairness.
They want subsidies at taxpayer expense, higher prices for consumers, or both.
Pathetic Hooey
What a pathetic bunch of hooey from Trump.
Mike “Mish” Shedlock
Sign of the times
Layoff List:
The Lexi guy says that the “neighborhood is being dictated by those who don’t live there.” But that’s not true. The ppl who live there are buying online and choosing to NOT go to the local store.
“neighborhood is being dictated by those who don’t live there.”
If only….!
The problem is that the neighborhood is being dictated by those who don’t work, hence create some value, there. And who hence would live there, if only America was a free country. And not a Venezuela style, totalitarian, kleptocratic dump.
The survivors will be determined by what they sell. Not by their balance sheet. There will always be a need for grocery stores, dry cleaners, clothing stores, hair salons, etc… .
Grocery stores, yes, hair salons, yet, but the other two, not so much. Clothes can be purchased online, and dry cleaners become increasingly irrelevant each year. Over half of all cleaners will close in the next five years. They fight five negative trends that are permanent (more casual attire, clothes that take less care, better home equipment, better detergents, more disposable clothes as cleaning costs rise with inflation while clothes prices fall due to globalization). Baby boomers still do a lot of cleaning, but as they retire over the next five years, that industry will die because millenials will not replace them.
A lot of people like to try on clothing before buying and what you wrote about dry cleaners has been true for over 10 years and mainly applies to men.
If the rent a clothes merchant has to pay for a storefront, in one of the few places left where the Fed is dropping enough freshprint to allow anyone to buy anything, gets usurious enough; it’s cheaper to simply ship a few containers of various sizes and models in from Vietnam, letting the customer try them on at home, and pick up the non fitting ones a few days later.
It is absolutely true that many like to try on clothes before they buy, which is why there will always be clothing stores, however, companies like Lands End and LL Bean have been selling a lot of clothes over the phone for years, and I suspect that that segment continues to grow. Furthermore, mall ready-to-wear stores depend on very high margins, and therefore are particularly vulnerable to online competition. There will continue to be clothing stores, but most likely, not as many.
As for cleaners, what I wrote has been true not for 10 years, but for 110 years. My town only has 4 left, while it used to have over 100 of them. If it applies mostly to men these days it is because most women already no longer dry clean. Thirty years ago perhaps 80% of drycleaning was done by women, and today it’s probably more like 20% or less. The men have been slower to stop using cleaners because many still like to wear a pressed shirt, but as baby boomers retire, those will give way to polo shirts. Dry cleaners will go the way of the buggy whip within a decade.
“I do not support subsidies. Period. Amazon does not survive because of them. Nor are stores going under because of subsidies to Amazon.”
I would respectfully disagree. So does the data. Amazon may not survive because of them, but the huge subsidies Amazon receives certainly increase Amazon’s monopoly power in the marketplace, thereby increasing the company’s profit, and insuring its viability as a going concern. This much is obvious. It’s pretty difficult to compete with a business which pays no federal taxes while also receiving huge state and local sweeteners which pad their bottom line. This crony capitalist formula has also been working wonders for Mr. Bezos’ bottom line as well.
It seems many of the “gig economy” wonder tech companies are rushing to get their IPO’s out the door. It will be interesting to see how well they fare if and when they are subject to labor laws and regulations which they have been flouting. Remove the regulatory, tax avoidance schemes, and may of them have business models which aren’t really innovative at all.
“Remove the regulatory, tax avoidance schemes, and may of them have business models which aren’t really innovative at all.”
Remove the regulations and taxes, and doing something productive, may just about become viable in America again.
Communist utopia (ie happy unemployment through technological advancements) and libertarian utopia (ie happy employment without taxes and regulations) are so similarly utopic.
Why people just can’t come to their senses?
…and bend over?
Smaller chains are also going under. As I pointed out in another recent thread, a Wisconsin based chain of discount stores with stores in 34 states, Shopko, which was sort of like a K-Mart or Walmart, filed for bankruptcy in January, and they are closing about 300 stores. There were Payless Shoe stores inside them, so those would be included in the numbers above for closing Payless Shoe stores. Many of the other smaller discount store chains have also closed.
“Dealerships next in line,1/3 of new car dealerships will be gone in a year. more than half in 2 years”
I think that timeline is wrong but the idea is correct 5-7 years
I do not support subsidies. Period. Amazon does not survive because of them. Nor are stores going under because of subsidies to Amazon.
Maybe we’re all just tired of buying stuff. When was the last time you bought a suit? Every day is casual Friday unless you’re an undertaker. The rest of the time we’re in jeans or worse. JC Penny can’t be doing well.
Dealerships next in line,1/3 of new car dealerships will be gone in a year.more than half in 2 years without a bailout or the fed starting to quietly buy cars off dealer lots to prop em up.the big 3 will lookin at bankruptcy or bailout your pick.
Isn’t the high cost of commercial real estate along with high debt the key reason rather than just online competition? This single reason logic is actually what is taught in business schools. The reality is usually a multiple of reasons.
Our local Hallmark store just closed because their lease was being raised way up.
As someone who has rented spaces in Shopping centers a few times over the last 30 yeas, trust me, the rent has always been high. They intentionally keep it as high as the market will bear. As vacancy rates rise, rather than seeing rents fall, expect to see shopping center owners offering freebies with new leases. Also expect to see the weakest centers simply close.
It seems unquestionable that the primary problem is online, though. As for Hallmark, I suspect they are closing everywhere, again, competing with e-Cards, or just more direct contact.
There’s no bigger waste of money than buying a card. $2 for something that’s read once and then thrown away.
“They intentionally keep it as high as the market will bear.”
And the more restrictions there are on building more space, the higher the usury the increasingly desperate productive few can be forced to bear. For something which, like sand, a free market would provide for next to nothing.
Couple that with handing over unlimited money, stolen from the same dwindling group of productives by debasement and taxes, to idle leeches for simply clinging on to a decaying structure until the next anticipated bailout; and sitting on the empty space instead of renting it, is darned near cost free.
A nice setup for achieving the progressive goal of robbing the ever dwindling class of productives; for the benefit of idle, utterly expendable, but connected, leeches. And an absolutely horrible one, for anything more useful than that.
Even in places with no zoning, mall rents are high. They cost a lot to build, and they cost a lot to run. The other thing that many don’t realize is that in order to get “anchors” for malls, mall operators would offer long term leases at very low rates to people like Sears, or Penny’s. If the anchors are paying $6/sq foot, someone else has to pay more. By the way, if you feel malls are hugely profitable ripoffs, you can readily invest in them by buying REITs. I personally wouldn’t touch them as I think there is going to be a huge shakeout.
Rents are high because there aren’t alternatives across the street that are sitting abandoned and vacant. The reason cell phones, food and virtually all else which is non regulated is cheap, is specifically because there are piles of unsold stuff everywhere. That’s how freedom works: Things get “overproduced.” Then firesold. Because even in our late stage financialized dystopia, noone sitting on past due date mayonaise, expects The Fed to step in and buy it from them if they only hold on to it long enough. Nor the government to ban everyone else from selling mayo, in order make them whole.
Also, if you look at where the expenses of Mall construction, like pretty much all construction by now, goes; the vast majority, of both time and money, does not go to materials, equipment rentals, and construction worker and engineering salaries. But instead to layers upon layers of planning, greasing, nimby driven petty quarreling, “studies,” putting up with everybody and his retarded uncle having opinions about what the facade must look like, how many same sex lavatories it needs blah, blah. By the time the building starts, the project is 3/4s done (90+% in West Los Angeles, but that may be an extreme case.)
It’s not for nothing that successful mall developers, are about as close to state and local politicians, as any group this side of Union bosses and banksters. It takes a lot more than a gang of bored Mexicans sitting idle outside Home Depot, to get a mall built in America today.
What you are saying does not reflect the reality that I see in malls around here. Across the street from every mall, invariably there are un-rented vacant spaces. I see smaller malls built across the street from larger malls empty and closing. I see local vendors who can’t afford the high rents moving to the vacant spaces across the street, thinking they are getting a deal, but then closing because they no longer do enough business to pay even the lower rent. Meanwhile, the malls replace the local tenants with big chains, operating with very high margins, who can afford the rent.
So, why have mall rents been so high? Because the malls have drawn enough customers to justify it. In this internet age, will that continue to be true? I doubt it. I think rents will have to adjust, and I think we will see more malls go the way of Rolling Hills Mall in Akron, Ohio:
I have to admit my “Mall” (more like shopping center) experience is limited to SoCal (LA). No abandoned malls here.
But “unrented” is very different from “unrented at, at most, the lowest rent required to, maybe on a lucky day if you’re optimistic, recoup physically slapping together a similar amount of covered space next door.” Which is the natural, free market, unmanipulated and efficient going rent for a space.
Even in San Francisco, there are plenty of “for rent” signs. Yet startups aren’t viable unless ran from a couch in the apartment of the one founder with parents willing to pitch in for a $6K/month two bedroom roach motel. And for anyone needing more suitable space than that, those “investing in startups” consists mainly in “investing” in usury payments to deadweights. Not a particularly efficient use of scarce capital, to say the least….
If this mall is far enough out in the absolute hinterlands, I guess it’s possible noone can find any viable use for the covered space and surrounding infrastructure; even if it is available on a truly “abandoned,” as in “40 acres, bring your own mule,” basis (There are some abandoned mining and trapping camps in Alaska like that…). But my guess is, it’s not. Instead, it’s merely “abandoned” in the newspeakian meaning of the word. Hence kept from putting the kind of downward pressures on surrounding rents that it would have in a free market.
And, back to LA and SF: Rents are multiples of what would be required to cover building the amount of space covered in this mall. Ditto in many, likely most, populated areas of America. Yet additional space isn’t being built. Additional square feet isn’t being made available at nearly the rate required to keep rents for new construction at breakeven or a bit above. With older, “abandoned” space being much cheaper, the way older Iphone generations, and all aging products in free markets, are. If it was, in the areas people actually live, work and hence are maximally available to shop, local retail would be much more viable in competition with eCommerce, than it is now.
I can’t speak to the California market, but I can tell you that not all markets are as restricted as what you describe. For example, in Houston, they used to have no zoning laws, so anyone could put a mall anywhere they wanted. I don’t know if that’s still true, but I suspect that mall rents are high even in Houston. One mall here was not demolished, as what happened in Akron, but rather the landlord converted the facade into big box spaces, and the back into offices and a large laser tag area, and the movie theater added an outside entrance.
Don’t get me wrong, I have no love for Mall owners. They can be dishonest, corrupt people who lie to your face. I had that kind of experience with one. “Oh, absolutely, we want to renew your lease”. “You haven’t gotten your renewal yet? I’ll check on it, and make sure you get it right away”. “You have 30 days to get out. We do have another, less desirable space, one where no tenant has ever survived for more than 6 months, and we’d be happy to rent that to you for only triple what you are paying now”. I watched a man I knew build a hugely successful business in one, and then right before his busy season, was handed a 30 day letter. He moved into a vacant space down the street, but 30 days after he left, his former space re-opened with a direct competitor of his taking his place. I watched as a local jeweler had his rent tripled after a national chain bought the mall, and then, with the ink barely dry on the new lease, the mall brought not one, but three national jewelry chains to the mall. So, yes, mall owners can be, and often are, scum.
Nevertheless, I also recognize that for years they were able to provide tenants with a reliable customer flow, such that a good tenant could generate sufficient profit to afford the rent. Rents were often a minimum, with a percentage of sales override. Thus, the mall had an incentive for the store to succeed; the more more the store sold, the more rent they paid. It was a symbiotic relationship that allowed both tenant and mall owner to profit. Ever wonder why malls have become ubiquitous, with every mall in the country looking exactly the same? It’s because only a few stores are profitable enough to afford those rents, and so they end up in every mall.
I see this changing. I see people preferring to shop online, and less eager to fight the crowds at the mall. Mall stores are heavily leveraged to sales – they need very high sales and margins to pay their rents. A drop in either, and their profits could evaporate. Mall owners are also heavily leveraged, with high levels of debt. A drop in sales in the malls that erases some of their tenants, and causes resistance to rent increases will put some of the malls themselves at risk, too. I think we will see a huge shakeout. Right now it is the big box type stores like KMart, Shopko and Payless Shoes, and the department stores, like Sears and Pennys that are closing, but the malls are going to see some effects, too, in my opinion.
I just remembered something ironic. The store I lost the lease on, some 25 years ago, the space was given to another tenant. That tenant was none other than JC Penny.