Tis The Season For Bankruptcies
As we close out the year, the holiday season will soon be behind us. For retailers, this is the end of their "money season". Many retail stores make upwards to 40% of their entire yearly revenue in the holiday month.
The focus upon this time of year is enormous. If retailers have a rough go of it, then the rest of the year is going to be tough.
Of course, that is in normal circumstances. 2020 was anything but normal and the retail world was in a dire situation before COVID-19.
What took place this year only make things worse.
According to an article on CNN, more than 30 retail companies and restaurant chains already filed for bankruptcy in during the past year. As we cross into the new year, we can expect more to be added to the list.
We saw over 8,000 store locations going under.
Things are equally as bleak in the restaurant industry. From the same article:
Business is equally bleak for the US restaurant industry. About 17% of the country's restaurants — roughly 110,000 — have permanently closed this year, with thousands more on the brink according to a recent National Restaurant Association report.
Business is equally bleak for the US restaurant industry. About 17% of the country's restaurants — roughly 110,000 — have permanently closed this year, with thousands more on the brink according to a recent National Restaurant Association report.
Over the last couple of months, I put together a number of articles detailing how life is difficult for the commercial real estate sector. There are many variables affecting things from the exodus out of urban areas to the work from home shift. However, the retail sector is just accelerating a trend that was in place long before the pandemic.
Online shopping is now eating into roughly 20% of all sales. This is a significant number when you think about it. Even traditional retailers like Walmart are getting into the action. That company is now going head-to-head with Amazon.
The United States already has more retail space per capita than any country in the world. What took place over the last few decades, the building of more retail space, is now coming back to haunt investors. As companies close up shop, landlords are struggling. They have huge mortgages tied to these properties, something that they cannot easily get out of.
Entering the first quarter is a challenge. Those companies that had a poor holiday season will realize the futility of continuing operations. Many were using the last part of 2020 in hopes of some type of resurrection. According to the numbers, it does not look promising.
While online sales continued to do well, those companies that were dependent upon foot traffic suffered a great deal. Those areas that were open saw a big drop in the number of people.
Many locations such as in New York City are suffering from a second lockdown. This will likely take out another large slice of the retail and restaurant business. As chains start to file bankruptcy, the effects start to ripple throughout the economy.
As always, here we see Mainstreet versus Wall Street. The average person is really affected when their jobs are lost due to the closings. Many of these people are living paycheck to paycheck anyway, so any setback is horrific. We can expect unemployment claims to go up as the holiday employment ends.
Overall, it is not a very optimistic situation for those who are watching the retail sector.
For reference, here is a quick list of the bankruptcies in 2020:
Bar Louie
Krystal
Pier 1 Imports
Modell’s Sporting Goods
True Religion
J.Crew Group
Neiman Marcus
JCPenney
Souplantation and Sweet Tomatoes
Tuesday Morning
GNC
CEC Entertainment
NPC International
Brooks Brothers
Sur La Table
Muji USA
Lucky Brand
RTW Retailwinds
Ascena Retail Group
California Pizza Kitchen
Lord & Taylor
Tailored Brands
Stein Mart
Century 21 (department store chain)
Sizzler USA
Ruby Tuesday
Friendly’s
Guitar Center
Francesca’s
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Oh there will be more.
I also wonder how many other industries will be affected by this.
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The fallout could be widespread.
Give it another 6 months, and we will have an idea. The work from home model alone is going to affect thousands of businesses that cater to office workers.
That is just one example.
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Most business are suffering, but I see a worst problem happening to any that do survive. Even the big businesses run on using a decent amount of debt. Right now interest rates on the 10 year is almost at 1%. Imagine what would happen if it tripled to 3%. This also hits states and the city where they can barely make their budget fit where it is right now.
Imagine what would happen if inflation ran hot and went up to 15% near it's all time high? I see bankruptcies any place besides those that took a fixed rate.
Well you really couldn't have both. If inflation ran, the Fed would be validated. They aren't going to be. If that was the case though, they have the tool for that: simply raise interest rates.
Their problem is the deflationary supercycle we are in and the fact they cannot get out of it. Japan already is mired deep in it, China is about to enter it, and we are going deeper ourselves.
The debt problem is going to be resolved through default. They will monkey around with it but in the end, a lot of the paper out there will go bad.
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I do believe we will probably default in the future the moment our debt to GDP ratio went over 100%. Which means trying to pay off the debt is almost unrealistic unless the government takes it seriously (doubt it will happen). The current situation where people have no choice but to depend on the government only makes it worst. I can only hope our taxes will stay at a manageable level, but there are definite issues that people do not understand. If our debt serves a purpose (expand), then it is good debt otherwise its only going to hurt us.
We are in deflation mainly due to tech because more is being produced with less effort (even if it includes cheaper labor at other countries sometimes).
Automation and wage deflation are what is eating up any chance of inflation going forward. This is something that has been taking place for 20 years and is only accelerating.
The US being over 100% is still a drop in the bucket. Look at Japan and China.
I look for sovereign debt to implode, starting in Europe and the Middle East. Those are the two most vulnerable if you ask me. The EU has more problems than most imagine.
It is a ticking time bomb ready to go off.
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Well imagine that? I believe those that also has their business online might want to do a little bit better than the rest but it seems these ones you mentioned here. It's absolutely done for them. Hopefully more will not follow.
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In 2020, Myanmar's economy has also declined significantly including retailers especially because of Covid-19 pandemic.
But, The good out of the bad, Online shopping and online payment systems are booming in Myanmar.
Thank for Sharing!
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Here in Brazil, this time is almost like shopping in the middle of a jungle, haha!
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I know when I worked at Radio Shack they used to call the time between Christmas and the end of the year the thirteenth month. People were coming in with all kinds of Christmas money and also with returns. Part of our job was to move them from the return in to something else. I was horrible at it. I don't miss that job.
I do miss Radio Shack though. They are another company that went bankrupt. Well before 2020. They made some massive missteps by going too hard into sectors that they should have known they couldn't compete in. I think they still have an online presence and there has been some interest in revitalizing them, but the damage to my stock is already done.
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Radio Shack is a prime example of a company that zigged when they should have zagged. There are many examples.
Change is something that many companies have difficulty with. Of course, a bit part of RS business model was foot traffic in malls. That dried up as online took over in general.
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That is very true. I was lucky to be in a store that was in a strip mall. We didn't get a lot of "lookers", but we did get a lot of employees from the local chemical plant who where there for a specific component. I had a couple engineers who would come in and compete with each other over how much they could put on their corporate credit cards. I think going all in on Cell phones and forgetting what got them where they were was one of their biggest mistakes.
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That and the fact that online shopping, especially Amazon started to eat into all physical retailers numbers.
It was one of those storms that just crushed Radio Shack.
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The crisis is so huge. Here in Austria are in the 3rd lockdown. For the retailers it's a big problem. Okay, they get a bit back from the state, but this is not really much. I bet we gonna see some bankrupie here too
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A bit back doesn't replace a lot lost.
That is the sad reality of the situation.
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2020 was not a good year of the course and because of lockdown many companies and stores are in a bad position. If a country has to go for another lockdown then it will hit badly on the economy and businesses.
Online sales have gone well but not everyone can operate online and that made them lose money and lay off their employees.
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I think this number is even a bit low. I guess here in Western Europe the percentage is much higher. And evern more now most countries are in a total lockdown.
I also think more people will experience the ease of shopping from home and the numbers won't go back to what they were before Covid-19.
I must admit it's very convenient for me to buy online instead of going to a store.
It's sad, but there's no way back I think.
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