The massive wave of store closures & layoffs in retail is very bad this year, and it’s likely to get much worse..
The massive wave of store closures and layoffs in the retail sector has gotten so bad this year, it’s been dubbed the “retail apocalypse.” But not only is it causing problems in the economy, Goldman Sachs thinks it is still likely to get much worse.
“Our REITs team does not expect a near-term reversal of store closures from retail tenants, which should continue to result in eCommerce share gains, in our view,” says Goldman Sachs analyst Heath Terry in a new research note to clients on Tuesday, according to a report by Yahoo Finance.
This information for investors was buried on page 10 of Terry’s report, however, several analysts feel that it should be a top concern because store closures are no longer doing the trick to shore up the retail space’s profitability as in years’ past. Instead, the argument could be made store closures are only pushing more people to shopping on desktop computers, tablets and mobile phones —which is usually a less profitable transaction for retailers due to free shipping costs and investments in building out digital capabilities.
But the retail apocalypse cannot be blamed solely on the rise of digital shopping. Companies are going bankrupt at breakneck speeds because they are unable to pay back the massive amount of debt they’ve taken on.
There are already 11,000 store closures this year, exceeding the annual number of the past several years, according to Terry. CoreSight Research, which is cited by Terry, projects the retail store closure number to reach 12,000 by year-end.
“We believe eCommerce growth will likely accelerate over the course of the second half as a record number of retail store closures, initiatives around fulfillment such as Amazon’s $800 million investment in same-day delivery and Etsy’s move to free shipping, and easing comps, drive more consumers to shift purchases online,” Terry writes.
The other problem retail is facing is the lack of disposable income in most households in the United States. With 25% of Americans putting necessities, such as food, on credit cards, there’s little left over for the luxury of “retail therapy.” Another glaring statistic is that 78% of Americans are living paycheck to paycheck as well and as the costs of goods and services continue to rise, the incomes of most households do not.