"The Retail Bubble Has Now Burst": A Record 8,640 Stores Are Closing In 2017

Tyler Durden's picture

        “Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst.”

        - Richard Hayne, Urban Outfitters CEO, March 2017

The devastation in the US retail sector is accelerating in 2017, and in addition to the surging number of brick and mortar retail bankruptcies, it is perhaps nowhere more obvious than in the soaring number of store closures.

While the shuttering of retail stores has been a frequent topic on this website, most recently in the context of the next "big short", namely the ongoing deterioration in the mall REITs and associated Commercial Mortgage-Backed Securities and CDS, here is a stunning fact from Credit Suisse:"Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008."

According to the Swiss bank's calculations, on a unit basis, approximately 2,880 store closings were announced YTD, more than twice as many closings as the 1,153 announced during the same period last year. Historically, roughly 60% of store closure announcements occur in the first five months of the year. By extrapolating the year-to-date announcements, CS estimates that there could be more than 8,640 store closings this year, which will be higher than the historical 2008 peak of approximately 6,200 store closings, which suggests that for brick-and-mortar stores stores the current transition period is far worse than the depth of the credit crisis depression.

As the WSJ calculates, at least 10 retailers, including Limited Stores, electronics chain hhgregg and sporting-goods chain Gander Mountain have filed for bankruptcy protection so far this year. That compares with nine retailers that declared bankruptcy, with at least $50 million liabilities, for all of 2016. On Friday, women’s apparel chain Bebe Stores said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations.

Broken down by retailer, either in bankruptcy or not yet:

Another striking fact: on a square footage basis, approximately 49 million square feet of retail space has closed YTD. Should this pace persist by the end of the year, total square footage reductions could reach 147M square feet, another all time high, and surpassing the historical peak of 115M in 2001.

There are several key drivers behind the avalanche of "liquidation" signs on store fronts.

The first is the glut of residual excess retail space. As the WSJ writes, the seeds of the industry’s current turmoil date back nearly three decades, when retailers, in the throes of a consumer-buying spree and flush with easy money, rushed to open new stores. The land grab wasn’t unlike the housing boom that was also under way at that time.

“Thousands of new doors opened and rents soared,” Richard Hayne, chief executive of Urban Outfitters Inc., told analysts last month. “This created a bubble, and like housing, that bubble has now burst.”

The excess retail space means that North America has a glut of retail outlets, as well as far too many shopping malls, something which is becoming apparent as sales per capita decline. On a per capita basis, the US has roughly 24 square feet of retail space per capita, more than twice the space of Australia and 5 times that of the UK.


The over-storing, including the influx of fast-fashion and off-price chains, has resulted in a brutally competitive landscape that made difficult for retailers to raise prices. “A pair of men’s dress pants costs less today than they did a decade ago,” Manny Chirico, chief executive of Calvin Klein and Tommy Hilfiger parent PVH Inc., said in a recent interview.

* * *

Then there are retail rental rates, which across top US markets, such as New York, remain the highest in the world. For years, retailers could afford the egregious demands by landlords. But as overall traffic and volumes have declined, this has also prompted an exodus of outlets even among the most desired locations, leading to a surge in "fors rent or lease" signs popping up in unexpected places like Madison Avenue's "golden mile."


According to the FT, on New York’s Fifth Avenue, the world’s most expensive shopping street, vacancy rates have jumped from 10 per cent a year ago to 16 per cent, according to Cushman & Wakefield. Rents there have fallen for the first time since the recession “and the trend is not over”, the consultancy warns. Vacancy rates across SoHo have climbed to 18 per cent, from 12 per cent a year ago, according to Jones Lang LaSalle.

The newfound caution among retailers has had a “very significant and fast” negative impact on retail property, says Chris Conlon, chief executive of Acadia Realty, a real estate investment trust. 


It is not just prestigious streets that have been hit. Malls are also hurting, as chains from Sears to Macy’s shut hundreds of stores. Analysts at Green Street Advisors argue that “low growth is the new normal”, while market rents are becoming decoupled from tenants’ revenue growth as more sales move online. 

“[Rents] are at a price point now that exceeds what retail sales can perform,” says Spencer Levy, global head of research for CBRE. He notes that a stronger US dollar also hurts sales in New York, where deep-pocketed foreigners historically flock for deals.

* * *

Then there is the online migration, which recently made Jeff Bezos, owner of Amazon, the world's second richest man.

As the WSJ adds, as retailers rushed to expand their physical footprint, the internet was gearing up to do to apparel companies what it had already done to booksellers: sap profits and eliminate what little pricing power these chains commanded.

Despite the view that shoppers prefer to try on clothing in physical stores, apparel and accessories are expected this year to overtake computers and consumer electronics as the largest e-commerce category as a percentage of total online sales, according to research firm eMarketer.


Helena Cawley, 37 years old, said she used to be a “die-hard” department-store shopper. But with two small children, the Manhattan entrepreneur doesn’t have time to visit physical stores the way she once did. “I buy much more online now,” she said. “With free returns and free shipping, it’s so easy.”

Ironically, that shift to online shopping has come at a high cost to retailers. It is less profitable to do business online than in a brick-and-mortar store, largely due to the higher shipping, customer-acquisition and technology costs of the digital world. Retail margins on average fell to 9% last year from 10.5% in 2012, according to consulting firm AlixPartners LP. Over that period, e-commerce sales increased to 15.5% of total sales from 10.5%. The internet has also made it easier for consumers to comparison shop, thereby erasing any pricing leverage retailers may have had. “The internet has acted as the great price equalizer,” said Joel Bines, the co-head of Alix’s retail practice.

* * *

Yet while the retail bubble may have burst, does that mean the conventional brick-and-mortar industry is doomed? Perhaps not:

Retailing has gone through shakeouts before, whether it was the superstores such as Wal-Mart Stores Inc., Target Corp. and Kmart that killed mom-and-pop shops, or category killers like Barnes & Noble Inc. and Toys “R” Us Inc. that did the same to smaller booksellers and toy chains. And even today, there are chains that continue to grow, such as off-price retailer TJX Co s., which is opening hundreds of stores under its Marshalls, T.J. Maxx and HomeGoods banners, as it steals market share from Macy’s Inc. and other traditional department stores.


“This is not the end of retailing as we know it,” Mr. Bines said. “People are not going to stop going to stores.”

He's right, however in the meantime there will be an avalanche of defaults: compounding the retail decline is the debt that retailers have added to their balance sheets in recent years, either through leveraged buyouts or to fund share buybacks. That leverage has become a problem as profits dry up. According to Moody’s Investors Service, the amount of debt coming due for 19 distressed retailers is set to more than double over the next two years.

Many retailers were slow to seize on the significance of these changes. When business was bad during the 2015 holiday season, many chains blamed unusually warm weather. But when the most recent holiday season once again failed to produce robust sales growth, “retailers realized this was a structural change,” Credit Suisse analyst Christian Buss said.

With all that in mind, is Amazon assured of becoming the world's first trillion-dollar stock, perhaps hitting the milestone even before Apple? Perhaps, then again, chains such as Wal-Mart have stepped up their game. In a bid to better compete with Amazon.com , the giant retailer has been scooping up e-commerce startups, including Jet.com and ModCloth. And just this past week, PetSmart Inc. bought Chewy.com, a fast-growing online rival.

Others have given up waiting for a recovery that seems always out of reach and are settling into what appears to be the new normal. “We’re planning as if the environment is not going to improve,” Jerry Storch, chief executive of Saks Fifth Avenue and Lord & Taylor parent Hudson’s Bay Co., told analysts earlier this month. In the meantime, expect more store closures, more bankruptcies (recall "According To Fitch These Eight Retailers Will File For Bankruptcy Next"), and, of course, far lower asset prices, both for retail equities and mall REITs, as well as the underlying CMBS securities that for years funded the US retail (and especially mall) bubble, which has now violently burst.

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aloha_snakbar's picture

LOL... who actually shops at Radio Shack, anyhow? Their brick and mortar stores are stuck in the '70's/'80's, and their online presence blows major chunks (go there and try to search for a part... it is a joke)...if I need something electronic, there are several places I can go online, no tax, delivered to my door. Sorry Radio Shack... here is your sign, go find a tar pit to fall into...

Raffie's picture

An they always want your full name, address and phone number to buy a small battery.

They been data mining for a very long time.

Where will I buy a Realstic 8 track deck now?

aloha_snakbar's picture

I think you can still get in-dash reel to reels on fleaBay

PrayingMantis's picture

... with a silly smile, Bezos is rubbing his hands together ...


Paul Kersey's picture

And yet, Tanger Outlet malls are kicking some serious retail ass.

"Tanger Factory Outlet CEO scolds retailers: 'Amazon is a convenient scapegoat'


max2205's picture

Fed picking winners and losers 

Shocker's picture


Full Layoff / Closing list: http://www.dailyjobcuts.com


We still a long ways away from a recovery.

Son of Loki's picture

How many future Barristas and welfare Americans did you say Obama's "awesome recovery" will result in?

1/3 of working Americans are already not working.

baby_tone's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

MANvsMACHINE's picture

Let me guess. You make $7k per month giving blowjobs to mall security guards in the back of the shuttered Wet Seal store. Am I close?

AVmaster's picture

Send the latest batch of welfare whores to war with china/russia/nk.... 


They wanted "equality" right?



GreatUncle's picture

Dream on there will be no recovery world is maxed out in all ways.

johngaltfla's picture

What isn't being covered as much is the ancillary commercial space that is becoming vacant also. The idea that this expansion would hold without substantive changes from D.C. was a joke. Without corporate tax reform, individual tax reform and cuts, and the burden of Obamacare lifted off small and medium sized businesses, most of the planned expansion for Q3 and Q4 will be terminated by June. This will lead to commercial leases and sales being cancelled, in some cases vacated with layoffs, and worse, a slow steady rise in bankruptcies as some marginal players in small sized manufacturing and logistics that were counting on relief.

This nightmare is just beginning and of course with the idiots in D.C. stepping on their dicks every 48 hours, it's only a matter of time before a 1929 or 1987 moment hits; the difference this time is the leverage is so out of proportion it will cause a ripple throughout the entire financial system without any type of safety net in place.

Whoa Dammit's picture

The problem is all the stores sell the exact same repetitive crap. The only time people buy anything anymore is to replace something that broke or that wore out. Since it's all the same crap, everyone might as well buy it at the cheapest place & the easiest way, hence Amazon. Amazon is the sign of an unhealhty retail environment.

WTFRLY's picture

GOOOOOOOOOOOOOOOOOOOOOOOOODDDDDDD. Let's get this party started before all my storeable food goes bad.

serotonindumptruck's picture

Rotating stock is key.

Eat some and replace some.

Huckleberry Pie's picture

@WTFRLY That was funny. Mine is already four years old, lol.

Took Red Pill's picture

many things last well beyond their expiration date though

ElTerco's picture

Apparel quality has gone to shit, that's why I have stopped buying. For shirts, it is now almost impossible to find one that I can't see through. I'm not going to buy that crap at any price. Those CEOs save 20 cents per shirt, but they are losing my business.

Lore's picture

My thought as well. I absolutely will not touch anything made in Bangladesh.  One would think that retail purchasing agents might look at the heaps of stale shit-quality stock accumulating dust on store shelves and get a bloody clue. 

When's the last time your local specialty retailer stocked well made shirts and pants, much less a good quality business suit? They're very hard to find, so when you do, take advantage, because there may not be another chance. The future of apparel seems to be disposable clownwear.  At least in the Great Depression, people in the soup lines tried to wear skirts and blouses and jackets and ties and strove to preserve a sense of decorum and dignity.  When this Greater Depression picks up speed, the purple-haired, clipart-tattooed Millennials are going to resemble misbegotten refugees from a Dr. Seuss book.  /endofrant

Ten Lost Years, 1928-1939: Memories of the Canadians Who Survived The Depression

sister tika's picture

Insightful comment, Lore.

Bai Suzhen's picture

If you live in Florida, a light cotton Madris cloth is a winner.  Back in the day you'd buy a Madris shirt from a shirtmaker such as Sero or Gant. The cloth was imported to New England, and the two Jewish guys that owned the factories would make you a button down Oxford-style shirt using (presumably) American labor.  Sero, Gant, Hathaway, all went out of business years ago.  Gant has been revived by a Scandanavian company, but the Oxford shirts use really thin material, are made by Third World labor, and cost too much.  Their models look like hipsters with Aids.  

Rubicon727's picture

Excellent points, Lore. I still have clothes from the 90s. There's no comparison between the quality of clothing then and now.

I suspect, behind all these closings, the investors & corporate CEOS with a stake in the stores expected to keep their profits high while downgrading the quality of the merchandise.

I need to take a sewing class on how to make tailor-made clothing, but the fabrics being sold are near junk bond quality.

Withdrawn Sanction's picture

"Apparel quality..."

Yep.  bought a pair of ordinary Levi's jeans at a dept store (yeah, I know, neanderthal on several counts, but so what).  The fabric was noticeably thinner to the touch than a similar pair bought just a couple of years ago.  Maybe that's the style these days

Moe Howard's picture

Levi's 501 jeans on Amazon - starting at $39.95 and goes up from there depending on color and type, not made in USA. I recently purchased a pair for the first time in over a decade, fit was good, material was much thinner than I remember, made in Bangaledesh I noticed after purchase. $35 in the AAFES. I won't be buying again.

Handful of Dust's picture

Bangladesh has some of the lowest quality textiles. My friends imports/exports and he says the higher quality stuff comes from China>Vietnam>Honduras>Thailand>India>Bangladesh.

ItsyBitsy90's picture

Try carhartt products.... made to last in USA...serious work clothes

In Ze No's picture


Planned obselescence was ramped up to ridiculous extremes.  Now we're wearing the throw away clothing I used to feel sad that working class Asians were wearing in the 80s.  

Thank you for actually saying it.  There is not one person in my social circle who will admit the denigration of quality in American inventories.  We truly have been turned into sheep.

Giant Meteor's picture

Bingo Rama ....

Planned obsolescence, taken to ridiculous AND logical extremes ...

Strip mine nations of their sovereignty, identity, nationality, pride, resources, manufacturing, work force ...

And supplant with government assistance, endless wars of aggression, currency debauchery, endless entertainments and distractions, diversion from any true or national solidarity, inflate all major true asset classes, while providing abundant cheap labor and inferior goods and products,  hide real inflation in lies, and claim little to no inflation, flood the imports market without restraint, with slave labor inferior made products, and then tell what is left of the American workforce, they must COMPETE with the same ...

Obsolete men obsolete "jobs", Obsolete Nations, Expendable humanity, all for the usury class, who really, do not give one fuck.


Antifaschistische's picture

I like quality...I seek it in every aspect of my life.   I used to pay for it in clothing.  But now that the quality of everything sucks, I refuse to pay top dollar for shirt JUST because it has a tag on it from a historically good brand.   It's just all junk.

So...they can blame whoever they want.  If I'm forced by buy junk, I may as well buy it used off ebay.

ArthurDaley-OldieTimeTrader's picture

And as Bezos & Tim Cook store all their respective company's earnings in USD Treasuries offshore in Ireland how long before the US Economy / middle class and the "Ex-Oligarchy" class are all declared bankrupt?  Here's your free weekend reading of the French 1790's debacle (from a French Noble's point of view) http://tinyurl.com/fiatmoneyoffrance courtsey of Jeff Bezos himself! It is a Amazon Free Kindle download! Oh the irony..

JustPastPeacefield's picture

That's why I stopped going there. Way too intrusive. 

New_Meat's picture

Clerk: "Your name please?"

Ned: "Cash"

Clerk: "First Name?"

Ned: "Johnny"

Town: "Folsom"

Clerk: "that's not here in the Commonwealth?"

Ned: "Nope, in CA"

Clerk: "Phone?"

Ned: "408-555-1212"

Clerk: "looks like we have several people with that number"

Ned: "Its a party line"

Withdrawn Sanction's picture

"They [Radio Shack] been data mining for a very long time."

It's true (and it was annoying), but it apparently didn't work.  Was it bad execution?  Probably...in part.  However, it's also possible that data mining may not be the E-ticket to retail nirvana that every retailer has been led to believe.  Kind of like the current internet model that's overly dependent on advertising as principal source of evenue for many sites.  Good luck w/that. 

Lore's picture

Ha!  I use a persona with fake name and really shitty postal (zip) code for surveys and questionnaires. It's fun, especially with an audience.

CRM114's picture

I have recently noticed that the assistants in the larger stores are no longer bothering to ask cash customers for data, but they still do for credit/debit. It's worth paying cash for that reason alone

Chauncey Gardener's picture

And, with all that data mining, they still failed. Must be running greenscreen "terminals" with DOS commands. Tandy is one fubar company...

serotonindumptruck's picture

Hey, now.

I kinda like my TRS-80 supercomputer.

Withdrawn Sanction's picture

Hah! good one.  A TR(a)S(h) 80 w/Visicalc was the first PC I used professionally. Ah, good times, good times....

CRM114's picture

TRS80 was the first computer I ever programmed. I even worked out how to make the ADD command 3 bytes shorter.

They deserve a place in history for that computer. It was just cheap enough for it to be affordable for many schools.

SilverRoofer's picture

There are so many brick and mortar store fronts vacant in my town and they keep building more retail small malls everywhere

Makes no sense

Son of Loki's picture

Lots of empty store fronts at the malls also. The big one near me has 11 empty spaces. I seldom go there since I am one of the few crackas walking around---Hispanics, blacks, Pakis and Indians (from India, not the reservation) compose 90% of the foot traffic there. Not even Chinese go there anymore ... they say it's too dangerous in the parking lot.


mmm...sounds like a familiar tune.

Placerville's picture

I just bought a new Ca. outlawed toilet online. No driving, no lines, no tax, free shipping, no questions asked. What's not to love?

kbohip's picture

I heard about those toilets.  They are "high capacity" and therefore not allowed to be sold in California.:)

Maynard G Krebbs's picture

With all the shit coming out of California , you'd think they would enbrace a high capacity flusher...

Antifaschistische's picture

and you only have to flush them once....unlike the legal toilets that need a triple flush, thus using twise as much much money to get the damn thing to swallow.

JustPastPeacefield's picture

I rike shopping with the Chinese, even if the old ladies rifle through every last banana to find the right bunch. And then they try to haggle with the clerk for a lower price. Oh well, it's a bargaining culture the old ones come from. At least the younger ones don't scare the shit outta ya. If they have that vacant stare, it's not because they're planning to kill you, they're just running some math equations through their heads. Nice people, White values. 

The rest of the third world trash that inhabit today's marketplace - see ya! Shooting at the nice regional mall near me earlier this year. You'll be surprised to know it was a couple of Obama's sons who had a little disagreement. Really, I'm not kidding. 

Honestly, when I was a kid, I remember going to that mall, and if I saw a single black person, you'ld turn your head. It was that rare. It was safe, and a pleasant place to hang out. Now ... watch for flying lead, and you don't have to ask for a description of the perps. You already know, and the news won't tell you. 

I remember going to the Glendale Mall back in 1994 with a friend. I was surprised to see that I was one of the few 'crackas' there, most of the others being Asian, Hispanics, and the Armenian crowd. Weird feeling to be a stranger in your own land. Flash forward, and now it's the whole country, not just 3rd world California.

You're a 3rd world shithole America. Enjoy.

greenskeeper carl's picture

The 'nice' mall of my childhood is still open, I think, but it's been a zombie for years. The whole area is full of
Mexicans now.

I did go into a closing down gander mountain recently. Bought some new Merrills for less than half price. I am not surprised gander is going out of business. Everything they sell can be had at academy for 10-25% less money. Hard to operate with those prices.

Antifaschistische's picture

yes...when quality is no longer offered, all that's left is price.

And for all the Hillary/Obama fans that reject the 'make america great' theme...I'd like for you to pick a single metroplex in the US with 1 million + inhabitants, and take an executive coach tour from east to west, and from north to south, across that city WITHOUT using a freeway and look at what we have become.....then come tell me how our immigration policies have made this country better.  How can you say that when you drive (in Houston) through hundreds of miles of once nice neighborhoods that are now places you would never ever live.