Consumer Problems Revealed by Two Reports

Recently, the brokerage firm Credit Suisse released the results of a study on retail store closures.

According to the report, 8,600 brick-and-mortar stores are set to shutter their doors in 2017.  This is up from 2,056 in 2016 and 5,077 in 2015 with a combined total for the last 3 years being over 15,000 stores.  Many of these stores are anchors that support other in the malls they operate in.  Also, the 8,600 closures this year outpaces 6,163 closure in 2008 at the height of the Great Recession.  CNN, which reported on these stats, concluded that it was Amazon and other online activity that was responsible for the closures.

My problem with CNN's conclusion is that, while it may be true in some cases, it doesn't square with what's happened in the restaurant industry which is also suffering from a loss of business and, logically, would be unaffected by online activity.  As reported by Nation's Restaurant News, year-over-year, same-store sales were down 1.6% and foot-traffic was down 3.4% in March.  This disproportional drop in foot-traffic versus sales implies that low-end restaurants are seeing the greatest losses in foot-traffic.  And, this is worrisome.

The loss of low-end customers coupled with massive retail store closures tells me that consumer activity is weak.  And, if consumer activity continues to wane, we could easily find ourselves in another recession since 70% of measuring economic growth is based on consumer spending.  Then there's this reality.  Store closures mean losses of jobs, and subsequently, losses of even more retail activity and restaurant foot-traffic. Further, restaurant job growth is now negative. Two facts that further point to a potential recession.

References;

Stores are closing at an epic pace: http://money.cnn.com/2017/04/22/news/credit-suisse-retail/

Q1 restaurant sales performance disappoints despite March improvements: http://www.nrn.com/sales-trends/q1-restaurant-sales-performance-disappoints-despite-march-improvements

Store Closures: Coming to Retailers Near You

At the end of February, the credit rating service, Moody's, announced that the number of credit-stressed retailers has tripled since the end of the Great Recession of 2009.  Further, based on the current trend, Moody's expects a record number of these distressed retailers to close within 5 years; assuming they don't close before that.

The explosion of retailers shutting their doors began in 2015.  Thousands of big-name stores hit the skids starting with the bankruptcy of Radio Shack and the closure of nearly 1800 other locations..  Some claim that the retail closures are a result of the fact that there is just too much retail space in the U.S..  In fact, there is 7 feet by 7 feet of retail space (50 square feet) for every man, woman, and child in the country.  Other factors are the Internet. Sites such as Amazon are killing the traditional brick and mortar stores.  But, that doesn't necessarily explain why McDonald's was forced to close 700 stores in 2015.  I personally believe that people's wages have suffered, and as a result, discretionary spending is a major problem.

Whatever the cause, retailers shutting their doors means a loss of jobs.  It also means a loss of economic growth, which is primarily based on consumer spending.  That could mean that we are heading to another recession in the not-too-distant future. Of course, that assumption is based on the fact that the number of distressed retailers isn't just a trend, but instead, the canary in the coal mine for the economy.  It's only early March 2017, and already 13 major retailers have announced the closure of 1500 stores.  Both Macy's and Sears/K-Mart are on death watch.  And don't be shocked if more find themselves in a similar situation.

In my opinion, the situation is serious for both jobs and the economy. and can't be rectified unless or until wages start growing again.  Note my blog entry "Can Trump Make Wages Great Again?" as referenced below. 
References:

Moody's: Moody's: Number of distressed US retailers triples since the Great Depression Recession; debt levels up: https://www.moodys.com/research/Moodys-Number-of-distressed-US-retailers-triples-since-the-Great--PR_362722

Number of distressed U.S. retailers at highest level since Great Recession: http://www.marketwatch.com/story/number-of-distressed-us-retailers-at-highest-level-since-great-recession-2017-02-27

Store closings are the hottest trend in retail: http://money.cnn.com/2016/02/25/investing/struggling-retailers-sears-best-buy-kohls-store-closings/

All 2015 Store Closings - Stores Closed by U.S. Retail Industry Chains: https://www.thebalance.com/all-store-closings-2891887

These 13 retailers are closing more than 1,500 stores in 2017: http://www.clark.com/major-retailers-closing-2017

Why are Macy's and Sears in distress? - The Washington Post:  https://www.washingtonpost.com/opinions/why-are-macys-and-sears-in-distress/2017/01/11/238461c0-d825-11e6-9f9f-5cdb4b7f8dd7_story.html?utm_term=.a411eb510dcd

Can Trump Make Wages Great Again? http://cuttingthroughthefog.blogspot.com/2017/03/can-trump-make-wages-great-again.html

To CNN: It's the Economy, Stupid!

In 1992, Bill Clinton was able to shorten George H. W. Bush's Presidency to just one term  by coining the slogan: "It's the economy stupid!".  I think today, its still appropriate, because the liberal political class and the liberal media just don't get it.

In a discussion following Bernie Sander's unexpected win over Hillary Clinton in Michigan, the host of a CNN news and opinion show -- whose name I don't know because I was just listening to the audio - expressed her amazement that the number one issue in exit polling was the economy and jobs.  Then, she went on to state that the economy is good.  Unemployment is the lowest its been in 8 years.  The stock market is still doing well, and that gasoline prices are 68 cents lower than last year.  So, I guess in her mind all is well, and there is nothing to complain about economically.


What she apparently doesn't understand is that people outside of her own gilded life are hurting.  If the economy is so good, why do we have a record number of people living in poverty?  Why is the real median household income sitting at a level that hasn't been seen since 1986?  Why did the average weekly wage fall by $6 in February for America's more than 157 million workers?  Why more than 6000 stores for major retailers closed last year, and why another 2500 stores are set to close this year?  Apparently, CNN's hosts don't read CNN's own Money news division's commentaries about how bad things really are. (see links below).

I think show producers should get their facts straight before airing falsehoods to a national audience.  Just one of the reasons that I rarely watch CNN.


References:

Exit poll: Both parties’ voters worry about economy, disdain federal government: http://www.star-telegram.com/news/politics-government/article64901532.html

It's the economy stupid!: https://en.wikipedia.org/wiki/It's_the_economy,_stupid

Record 46.7 Million Americans Live In Poverty; Household Income Back To 1989 Levels: http://www.zerohedge.com/news/2015-09-16/record-467-million-americans-live-poverty-median-houshold-income-back-1989-levels

Major U.S. Retailers Are Closing More Than 6,000 Stores: http://theeconomiccollapseblog.com/archives/major-u-s-retailers-are-closing-more-than-6000-stores

2016 Store Closures: http://retailindustry.about.com/od/USRetailStoreClosingInfoFAQs/fl/US-2016-Store-Closings-All-Retail-Chain-Store-Locations-To-Be-Closed.htm

The cracks in America's economy are growing - CNN Money: http://money.cnn.com/2016/01/28/news/economy/cracks-in-the-us-economy/

U.S. economy grinds to near halt at end of 2015 - CNN Money: https://www.google.com/search?q=cnn+economy+doing+well&ie=utf-8&oe=utf-8

Sears announces it's closing at least 50 stores - Feb. 9, 2016: http://money.cnn.com/2016/02/09/news/companies/sears-kmart-stores-closing/

Walmart will close 269 stores this year, affecting 16,000 Jobs: http://money.cnn.com/2016/01/15/news/companies/walmart-store-closings/

Sports Authority is bankrupt and closing 140 stores - CNN Money: http://money.cnn.com/2016/03/02/news/companies/sports-authority-bankruptcy/

Macy's closings could leave a trail of dead malls - CNN Money: http://money.cnn.com/2016/01/11/news/companies/macys-dead-malls/

Strong Retail Sales Does Not Mean A Growing Economy

Last Thursday, the retail sales numbers saw a surge; prompting the news agency Reuters to state this:

U.S. retail sales surged in May as households boosted purchases of automobiles and a range of other goods even as they paid a bit more for gasoline, the latest sign economic growth is finally gathering steam.

What I take issue with is the "finally gathering steam" statement.  Quite simply, a retailer can have stronger sales, not just because of more foot traffic to their store, but also because they may have been forced to raise prices.  If a retailer doesn't have enough sales to pay the bills, it will have no other choice but to close its doors.  This is a reality that is growing in strength, and which, belies the "gathering steam" comment.


The fact is, that American national retailers are suffering. Dozens of them are announcing store closures.  CNBC predicted this a year-and-a-half ago with their story titled  "A 'tsunami' of store closings expected to hit retail".  Since that story was run, Radio Shack has announced the closure of 1784 stores due to bankruptcy.  McDonald's is shuttering 700. The combined Office Depot/Office Max operation is closing 650 retail operations, and their chief competitor Staples, 225. Others include 200 Walgreens; 338 Wet Seal; 77 Sears; 100 Pier One's, 300 Deb Shops; 40 J. C. Penney's; and on and on with a list too long to enumerate (See References). 

In addition, shopping malls are also shuttering their doors.  Forbes is predicting 300 Mall closures in the next 10 years, mostly because they are losing their "anchor" stores like J.C. Penney,  Sears, and Macy's.  But, when a mall closes its doors, so do the dozens of small retail stores that probably won't survive without the large amount of foot traffic a mall provides.

We're six years passed the end of the Great Recession and we are seeing national chain store closures as if we were still in the midst of it; leaving us to question whether or not small local retailers are also closing at that same high rate.

I personally believe that "retail" is hitting the proverbial "brick wall".  You have a consumer who has so little money to spend after necessities, that you would have to go back 20 years to see the real median household incomes this low.

Then, retail prices are being driven higher by a variety of factors.  For starters, this is the first year that the employer mandate of ObamaCare kicked in.  Thus large national chains are being forced to provide health care insurance or pay a fine of between $2000 and $3000 for each employee not properly covered.  On top of that, liberal state legislators and city councils are raising the minimum wage.  For example, California's minimum wage was raised to $9 this year; and will go to $10 as of January 1st.  Additionally, President Obama, through executive order, is expected to force any employer, whose salaried workers make less than $52,000 a year, to pay overtime (time-and-a-half) when they work more than 40 hrs/wk..

The increase in retail sales is more about higher prices and not increased sales. Simply, the consumer is cash strapped and marginal retail operations are being forced to close their doors due to declining foot traffic.  

References:

Strong U.S. retail sales boost growth outlook: http://www.reuters.com/article/2015/06/11/us-usa-economy-idUSKBN0OR1H720150611

A 'tsunami' of store closings expected to hit retail: http://www.cnbc.com/id/101353168

Store Closings Index 2015 of Largest US Brick-and-Mortar Retail Chains: http://retailindustry.about.com/od/USRetailStoreClosingInfoFAQs/fl/All-2015-Store-Closings-Stores-Closed-by-US-Retail-Industry-Chains_4.htm

Some 300 malls should close in the next decade: http://fortune.com/2015/01/28/2015-mall-outlook/

Real Median Household Income in the United States - FRED: https://research.stlouisfed.org/fred2/series/MEHOINUSA672N

ObamaCare Employer Mandate - ObamaCare Facts: http://obamacarefacts.com/obamacare-employer-mandate/

State Minimum Wages | 2015 Minimum Wage by State: http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx

White House plans to force business to pay more overtime: http://www.washingtonexaminer.com/white-house-plans-to-force-business-to-pay-more-overtime/article/2556692