Written by Albert J. Haddad
There’s an apocalypse currently underway. While there are no aliens invading, nor does it seem like the world is ending tomorrow, in the retail space there is a sense of a type of “dooms day” scenario occurring.
You may be asking yourself, “what is this retail apocalypse”? Let’s explain.
What’s Currently Happening—
2019 has not been kind to retail stores. In what has been championed as a recovered and strong economy, companies are lining the aisle to close stores across the country. This has been dubbed: “The Retail Apocalypse.”
There has already in 2019 been more companies announcing their plans to dismantle retail stores, nearly 6,000, than the entirety of 2018.
Business Insider produced a list of companies that are in danger of declaring bankruptcy this year. This list included many well-known companies, who unfortunately see the need to shutter their doors and close down shop. Most of them have three issues that are causing their potential closing: e-commerce, debt, and loss of mission.
Closing stores has a lot to do with e-commerce—
Many of the most well named brands are finding it very difficult to compete in their brick in mortar locations, while the world is happening online. Stores like Victoria Secret, JC Penney, and Gap have all recently announced the closing of multiple storefronts across the country. Payless Shoe Store announced that it would be closing every store across the country. The retail apocalypse is now.
In a fast paced world, one that lives primarily online, it is difficult for big box retail spaces to make their financial need. Trying to compete at prices that online e-commerce offers, while still making rent is no easy task. Add to the bottom line that running numerous stores across multiple locations can become extremely costly, and the recipe is there for this type of retail disaster.
Closing stores has a lot to do with debt—
Upscale stores are facing the heat too. Though profiting in all four quarters last year, Neiman Marcus’s massive debts are crippling the stores viability. They run the risk of having to file bankruptcy protection this year because of their crippling $5 billion in debt, according to Business Insider. Other stores, too, like J. Crew, facing $1.7 billion in debt, are in the same boat. Now, package that debt, with falling sales, and an increasingly vast online competition, and the handwriting on the wall becomes very clear.
Closing stores has a lot to do with loss of mission—
Growing sideways is never the type of growth you want to see. This is exactly the type of self-proclaimed growth Guitar Center experienced, which put them on the doorstep of bankruptcy as late as April 2018. In an interview with Rolling Stone, CEO Ron Japinga, explained the sideways growth and trials the company was facing.
With nearly a billion dollars in debt, the company had to find itself. On the precipice of filing for protection, Guitar Center revamped its look and made an intentional effort with its customer support staff to help reverse failing sales and bring them back from the brink.
As an investor, this time is a cautious opportunity—
The Retail Apocalypse is in full swing and companies are having to adjust or get swept up in its wake. For an investor this could a prime opportunity to bring in a company to your location that could boost your investment. But, it is not something you should enter into lightly.
No one wants to be stuck with a tenant that could possibly fail to cover their monthly expense because their being beat in the retail sphere. So, tread lightly, strike firmly, but always make sure you’re getting the best deal for you!
What’s Should I Do?
As an investor who is looking to acquire or dispose of properties, here’s a couple of questions to ask in light of the retail apocalypse:
- Do you see yourself holding on to retail assets through the next retail cycle?
- How will Amazon affect your business in 5 years?
- In light of that, what are you going to do differently tomorrow than you did today?
If you have any questions, or need help answering the above, about how the Retail Apocalypse affects you or your investments, please call the Alpha-Rex team to discuss and answer questions on any property or portfolio needs you have.