Another Retailer Files Bankruptcy
(Edited)
Christopher and Banks is now entering Chapter 11 of the U.S. Bankruptcy code. Most then 75% of their sales comes from their physical locations. With the lockdown along with the decline in physical shopping, the company simply could not keep going.
In this video I discuss how many retail outfits are trying to make it as niche online retailers.
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BEER.Feb and March fallout incoming.
Bitcoin is not immune.
That could be true.
Nothing crushes the markets like a wave of bankruptcy filings.
It will be interesting to see how tied to the markets Bitcoin really is. Last March, it flowed in tandem, will it this time?
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But what a recovery it had. Important to mention also is the fact that the fall happened before the halving.
Bitcoin is starting to live in a world of its own and driven by its own metrics. It's not 100% sure that it's going to defy everything falling around, but I don't believe it's going to be too affected.
There might also be the case that investors finally see it as a store of value/safe haven.
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Yes, Bitcoin will continue to be intrinsically linked to the economy because that's how the economy works. Everything is connected. Just because Bitcoin is a unicorn asset doubling in value every year and siphoning great value from the river of liquidity... when the water runs dry everything suffers all the same. Can't squeeze blood from a turnip.
The only way to avoid this is for crypto to reach a tipping point in which more value is built from within the network than importing from outside sources & investors. I'd give it 10 years.
Prior to the pandemic there was data that suggests more than half of Americans were living pay check to pay check. Those American's don't benefit from Bitcoin or the stock market. The "recovery" was not a recovery for them. COVID has messed up the job market for them and there situation is worsening.
There could be an incoming wave of bankruptcies. This wave of bankruptcies is going to be in defaults on student loans, credit cards, mortgages, and rent payments.
I hope this can be averted. I am really curious to see what fiscal policy will look like. If done right we could have a "smooth deleveraging". If done wrong, we could have a repeat of 08'.
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I agree with this. All asset prices are up--stock, bonds, real estate, cryptos, commodities, and even oil. This explosion in asset prices have been driven by the Federal Reserve liquidity. There are limits to how much this liquidity can keep propping up asset prices
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Unfortunately this is probably not the last one to be hit with bankruptcy. Until the virus is taken care of and people's employment situation improves, I can only see more of this. However I do think even after this pandemic, there will be very few physical stores. They will probably shift to online business as they require 1) no physical location, 2) less employees and 3) targets everyone who uses the internet.
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The pandemic just sped up a trend that was in place.
I dont know what the total number in the US was last year but I think there were over 10,000 stores closed due to bankruptcy filing/downsizing. That doesnt include all the small shops that are being wiped out due to the pandemic.
It is not a pretty picture and I agree with you; there will be plenty of commercial real estate after we get passed this.
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In Europe we do a lot of that old school stuff... I think it's called walking :P so physical stores here are not so badly affected. Of course this may vary from country to country .
How big is this company?
You're right, it's just January and companies are starting to go bankrupt and for some of them the only way to survives is to become a middle man website.
It's awful through what the economy is going through, but all that happened with our consent. As long as people are blindly abiding absurde pandemic measures it will only get worse.
Once they're gonna throw the masks to garbage, where they belong to, something will change.
In my town by the way, the taxes for owning a car or any other type of property have been increased by 50% this year.
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I used to work in retail management and so I have done a lot of analysis on retail competition. You have a lot of great comments about the retail industry. I also use to work at the Department of Labor Bureau of Labor Statistics and so I thought your economic analysis was interesting as well.
Retail Trends
You hit on some key points / trends in retail. One of them being online vs brick and mortar. The other is niche or specialty retail vs general, department store, or big box style retail.
The niche vs general store battle tends to ebb and flow in retail history. Back in the heyday of malls when department stores like Macys, Sears, Nordstrom, and JC Penney were dominant the mall ecosystem was vibrant. The problem is that when stores get really big they try to take advantage of economies of scale and they forget that economies of scale aren't the same as economies of scope.
The giant retailers become victims of their own success. Their broad offering attracts a ton of traffic to the malls as they become a one stop shop for all types of good and they get bigger and broader. The bigger part is not bad, but the broader parts leaves then unspecialized and very vulnerable to stores that are niche.
The success of the giant retailers drove a ton of the traffic to the mall and the next wave of retail was good at exploiting this mall traffic. This class of retailers were niche and subculture brands like Abercrombie, Forever 21, American Eagle, the Gap, Banana Republic, etc. This retail became so hyperspecialized that you saw things like the Gap splitting into three subspecialties--Banana Republic for the richer, the Gap for the middle, and Old Navy for the poorer. You saw lifestyle brands like Holister which is Northern California beach wear and Pacsun which is Southern California beach wear. How specialized do you need to be?
These niche retailers became victims of their own success and took down the rest of the ecosystem with them. The really small niche stores like Abercrombie, American Eagle, Lucky, and the Gap were taking sales from Macy's. The problem is Macy's and the other big box stores are "anchor" stores. They bring in a lot of the foot traffic to the malls and they pay a lot of the rent to the landlords. These small niche stores are killing off the anchor stores which are killing off malls and reducing overall traffic in the ecosystem. This is why competition is good, but parasitic competition is bad.
The next wave of retail has been in "offprice". This is Marshall's, TJ Maxx, Ross, and Nordstrom Rack. These guys are moving back out of niche and back into the general store model. These weren't general enough though. When COVID hit they all got closed down. The most general of stores were Target and Walmart. Those stores not only had clothes, but they had refrigerated food which made them "essential". They were able to stay open while Marshalls and Ross and the rest of the "off-price" had to close.
Brick & Mortar vs Online
Target and Walmart have moved into a new category now that the retail industry calls "Click and Mortar". The are online and they have a physical presence. Amazon has already started trying to move into the Brick and Mortar sector with Whole Foods, partnerships with Kohl's, and Bestbuy. They also have small little physical stores in the Bay Area where you can just walk in and take stuff out of the store and it gets charged directly to your Amazon account with no cashiers.
I think retail competition will look mixed in the near future. Not too generalized and not too niche. Not all online and not all brick and mortar.
The Economy
I thought you brought up a lot of great points and my comments are already too long, so I'll be brief here. I just want to add that retail workers are one of the largest job segments in America. January and February is when we would be letting go all of the Holiday temp workers. Sales in February and March are abysmal, so even fulltime employee hours are cut back at this time.
When stores start to go bankrupt those non temp worker will start losing their jobs. There will be a decline in total jobs and a reduction of hours in the jobs that aren't lost. Online will absorb some of it, but online is too "efficient". This efficiency is great for prices and great for the economy in the long term, but really bad in the short term for cashiers which is the most common retail job.
The loss of one of the most common jobs could lead to a contraction in consumer spending which would lead to a contraction in retail which further causes more stores to shut down and you could find yourself in a reinforcing spiral. The decline in retail leads to a decline wholesale, manufacturing, raw materials, and so on. These retail workers will default on credit cards, student debt, rent, etc. Hopefully, none of this happens ...
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Summary:
In this video, the speaker discusses the ongoing retail apocalypse, focusing on the recent bankruptcy filing of Christopher and Banks, a women's apparel clothing store. The company's struggle due to the shift in consumer behavior away from in-store purchases to online shopping is highlighted. The speaker explains the implications of the company filing for Chapter 11 bankruptcy, delving into the differences between Chapter 11 and Chapter 7 filings. He also touches upon the potential strategies that companies like Christopher and Banks might adopt to survive in the current retail landscape, such as transitioning to online-only operations. The speaker warns of the broader economic repercussions of multiple retail bankruptcies and emphasizes the impact on various stakeholders like landlords, creditors, employees, and the credit markets.
Detailed Article:
The speaker opens the video by addressing the concept of the ongoing retail apocalypse, which has seen yet another player, Christopher and Banks, enter the bankruptcy market by filing for Chapter 11. He points out that 75% of the company's sales come from in-store purchases, signaling their vulnerability to the changing consumer behaviors favoring online shopping. The speaker mentions the company's failure to pay rent, despite receiving government aid, hinting at mismanagement and financial troubles.
A comparison is drawn between Chapter 11 and Chapter 7 bankruptcy filings, with the speaker indicating that Chapter 11 (reorganization) may not guarantee survival for retailers in the current environment. He cites the example of JCPenney, which managed to continue operating under Chapter 11 after creditors took over the company. The speaker uses the analogy of debt ownership to illustrate the dynamics between companies and creditors in bankruptcy scenarios.
Discussing potential survival strategies, the speaker speculates that companies like Christopher and Banks might transition to online-only operations and abandon physical stores as part of a growing trend in the retail sector. He mentions established online retailers like Amazon and Walmart, highlighting the shift towards niche online retailing among traditional brick-and-mortar stores.
The speaker warns of the impending wave of retail bankruptcies following the holiday season, which typically accounts for a significant portion of revenues for retail companies. He emphasizes the ripple effects of these bankruptcies on various stakeholders, such as bondholders, landlords, suppliers, and employees. Additionally, he expresses concerns about the wider economic implications, including the strain on credit markets and financial institutions, leading to a potential deflationary spiral.
In conclusion, the speaker anticipates more companies following Christopher and Banks into bankruptcy and speculates that such filings may become so frequent that they will no longer make headline news. He leaves viewers with a cautionary note about the escalating impact of retail bankruptcies on the economy and encourages them to stay informed about these developments.