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Sat Mar 17, 2018, 12:44 PM

America's 'Retail Apocalypse' Is Really Just Beginning

From November

Retweeted by David Fahrenthold: https://twitter.com/Fahrenthold

The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms.



America’s ‘Retail Apocalypse’ Is Really Just Beginning

By Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon
November 8, 2017

....
The reason isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains. ... The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.

Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.

Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years. Several companies are like teen-jewelry chain Claire’s Stores Inc., a 2007 leveraged buyout owned by private-equity firm Apollo Global Management LLC, which has $2 billion in borrowings starting to mature in 2019 and still has 1,600 stores in North America. ... Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.

Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 12:51 PM

1. The Romney/Paul Singer model in action.

You make a crime a profitable, you make it inevitable. Since no one bothers to crack down on these brigands, this was bound to happen.

Thank you for sharing this very informative, if troubling, report.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 12:54 PM

2. I recall this piece from last year

It makes very interesting and informed points about the multiple headwinds in the Retail Sector. It is indeed much more than just the Amazon effect and the sands will continue to be shifting under the category, as more and more stores close. I do not have the data available, but I understand that in 2017 more stores actually opened than closed and that is expected to be the same in 2018 which will be year worse than last for store closings.

Retail is not going away, it will adjust, modify, contort itself and make a variety of changes in the next few years as it has over and over again though the decades. Many of those changes that have already happened were never seen or noted by the consumer as they were in back offices, backrooms, in methods, policies, technology and procedures. Things and time change, Retail will do so as well.

It will be different, but it is not going away.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 12:55 PM

3. We visited a couple of JC Penney's yesterday to buy some shoes. I'd hate to see 'em go under.

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Response to yallerdawg (Reply #4)

Sat Mar 17, 2018, 01:10 PM

6. Mine may go too

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Response to shenmue (Reply #6)

Sat Mar 17, 2018, 01:29 PM

9. They opened up a Walmart Neighborhood Grocery...

a couple miles from the regular Walmart, and now my Winn-Dixie is "underperforming" and closing its doors.

Over 500 BOGO's this week as it begins to wind down.

It was a beautiful stand-alone grocery. Always helpful and courteous, they even tore out those "self-help" checkouts and went back to real people!

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Response to yallerdawg (Reply #9)

Sat Mar 17, 2018, 02:07 PM

14. Are you in Pasco County, Florida?

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Response to shenmue (Reply #14)

Mon Mar 19, 2018, 03:31 PM

17. I'm in Montgomery, Alabama, couple miles from downtown.

Update: No BOGO's or weekly ad sales now - everything is 10%, 20%, 30% off at register.

Meats are selling out and not being replaced.

Produce is selling out.

It's like losing an old friend.

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Response to yallerdawg (Reply #17)

Mon Mar 19, 2018, 05:46 PM

18. Yipes

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Response to yallerdawg (Reply #4)

Sat Mar 17, 2018, 01:10 PM

7. They bought the local Piggly Wiggly stores in Savannah

Closing the last one now. Totally destroyed those stores, which were good before the takeover.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 01:09 PM

5. This all true, and I've ranted for years about money guys ruining retail, but...

people still have to buy stuff. The retailers in trouble are in trouble for one big reason-- you have to borrow to buy out. The second reason is that they don't have retail guys running the show. Cutting costs is one thing, but means nothing if people aren't coming through the doors.

ToysRUs came about by ruining KB, Lionel, and small local toy shops. Barnes&Noble grew on the backs of local bookstores and smaller chains. Home Depot put hardware stores and lumberyards out of business. Staples... and now Amazon continues the feeding frenzy, showing then how it's really done. All of them, though, had shares at ridiculous multiples, so if you are going to buy them, you are billions in the hole before you start.

Walmart, of all of them, seems to have the answer Amazon is trying for. "Come here to buy stuff-- if it's not on the shelves, or you can't make it here, we can deliver it to you or you can pick it up at the store on Tuesday." And Walmart doesn't have a few hundred billion in debt to pay off.

Sears/Kmart is next. The local Sears closed down and the Kmart is on the way out. It's a dreary little hellhole with limited selection and in need of a decent paint job. The local Walmart just moved into a new space and it's actually inviting. Target is totally welcoming, with great lighting, good food displays, and all the drygoods you want. Add debt to incompetence and watch what happens.

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Response to TreasonousBastard (Reply #5)

Sat Mar 17, 2018, 01:25 PM

8. I don't go shopping often.

I bought a Kindle Fire from Toys R Us online a year ago. I would have picked it up at the Baileys Crossroads (northern Virginia) store, but the logistics of getting there on the bus made it much easier to buy online. The cost was identical, to the penny, either way.

Buying at Walmart is a joy. I can go online, pick a store, and see what is on the shelf. I know before going whether my trip will be a waste of time or not. I buy grits in the 5-pound bag. Sometimes it's on the shelf; sometimes not. I can wait. I see that a store closer than the one I have always bought the grits at now has them.

I rarely buy online. I prefer the tactile experience of seeing what I'm buying before I buy it.

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Response to mahatmakanejeeves (Reply #8)

Sun Mar 18, 2018, 08:21 PM

15. I tried that but they never have what they claim to have on their site

Admittedly I'm looking for more then just groceries. I was looking for a silicone baking sheet and our local Walmart claimed to have it in several different brands. When I got there they had a copper one but no silicone. Same thing with some cardboard cake sheets and growing pots. I even ask some unaware employees. My bette half thought I hadn't looked then she went and didn't find them either.

The Walmart site is alway claiming they have stuff in stock they don't have. I've given up shopping there except for paper products. We have 3 Food City grocery stores that are more helpful and less warehouse like. They are kicking Walmart's butt in this little town.

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Response to TreasonousBastard (Reply #5)

Sat Mar 17, 2018, 01:43 PM

10. "they don't have retail guys running the show"

Ain't that the truth.

I went to a local mall's JC Penney on a weekday morning, shortly after opening, to buy assorted clothing items. I prefer this because clothing manufacturers make lower-quality versions of their products for the online channel.

The displays were a mess with items on the floor, in the wrong place on the shelves, everything looked picked over. There were empty soda pop and starbucks cups sitting on top of merchandise displays. This was within an hour of opening and there were few customers in the store.

Can you imagine a "real" retailer allowing this to happen? Where was the store manager? They should have walked the store before opening and instructed departments to straighten up their stock. The various department managers should be doing this but maybe they don't have the sales to support department managers. In that case, the store itself has a manager who should be doing this.

So, yes, these people running department stores know nothing about the retail business.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 01:47 PM

11. For the most part, I think these buyouts often happen when an organization is going down the tubes

anyway and there is no other option other than to close down without some infusion of cash with the hopes of restructuring somehow. The buyouts just prolong the inevitable and get peoples' hopes up. Sometimes the buyouts do result in the organization continuing and improving, other times it's just a salvage operation with the salvagers walking off with whatever assets remain.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 01:57 PM

12. Private Equity Grouips need to be outlawed,

 

a decisioin I made when the Carlyle Group was poised to make so much money off of GWBush's administration and the Iraq war.

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Response to mahatmakanejeeves (Original post)

Sat Mar 17, 2018, 02:02 PM

13. 'overloaded with debtoften from leveraged buyouts led by private equity firms.'

that some clever guys thought was such a good idea, "Debt is Good!"

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Response to mahatmakanejeeves (Original post)

Mon Mar 19, 2018, 01:21 PM

16. and so is our nation with $21,000,000,000,000 debt

 

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