The Looming Retail Bailout
While the economy finally seems to have recovered from the Great Recession, complete with discussion of full employment and rising wages, the memo must have missed the retail industry, where top executives of Macy’s, J.C. Penney, Office Depot and the like pepper quarterly analyst briefings with terms like “softening trends,” “disappointing” and “not satisfied.” Since January, at least a dozen shrinking retailers have announced nearly 3,000 store closings. Even well-regarded companies such as Nordstrom see their shares trading at barely half their 2015 highs.To explain their plight, retail executives cite hard-to-control factors, such as changing consumer tastes and aggressive moves by the industry’s six-letter word, Amazon. They argue that retrenchment and better merchandising will turn things around quickly. A close look by Forbes, however, reveals that retailing’s troubles run far deeper, largely because of three self-inflicted problems. The charts that follow show the painful consequences of retailing’s bare-bones pay habits, a chronic inability to innovate and an ill-timed rush into the high-debt world of private equity ownership. For many, these problems won’t be fixable. Expect more store closings, half-empty malls, layoffs and liquidations. In a full Schumpeterian cycle, new and better-run retailers would emerge, aiding shoppers and the overall economy. The problems for brick-and-mortar chains, however, seem so entrenched that the entire retail infrastructure could collapse. While there’s little support for a retail bailout–especially when Amazon and its ilk make it look so easy–Greg Petro, head of the retail consulting firm First Insight, notes that the closely linked businesses of retail, restaurants and grocery stores employ 28 million. Racks of unsold yoga pants won’t seem so frivolous if the consequences include broken leases, soaring commercial vacancy rates and a real estate sector that falls behind on its debt payments. Read more at Forbes.
