"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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Chauncey Gardener's picture

Well, Houston's "constituents" keep re-electing Sheila Jackson-Lee, so here's your sign.

new game's picture

everything is negotiable, even our freedom...

Handful of Dust's picture

I'll take a Chinese immigrant ANYTIME over most of the others and definitely over some of own home grown hiphop shilings and/or lazy FSA thugs.

swmnguy's picture

I've lived within 10 miles of the Mall of America in the Twin Cities since the thing was built, so 25 years.  I've been there fewer than a dozen times.  I've been there three of those times in the past few months, since the Microsoft store is there.  

The place is busy all the time, and just due to the demographics here, it's mostly white people (though to a lower proportion than the general population).  The place is clean, and most of the store spaces are in use.  But what use?  There have to be 5 "Lidz" outlets, 6 or more "Sunglasses Hut" stores, and I know there are 4 "Ragstock" upscale "thrift" stores there.  So at least 15 spaces are really just 3 stores.  

Need a ballcap, cheap sunglasses and an ironic Hawaiian shirt?  MoA's gotcha covered.  Need anything actually useful, shirts with buttons sewn on securely, jeans with actual denim fabric instead of that lightweight twill with spandex, etc.?  Don't go there, that's for sure.  I'm not sure exactly where you should go anymore, but not to a topline retail mall.

People are eager and persistent to take out loans to spend $75 on a pair of pants that will look outdated in a year, if they last that long without the stitchery falling apart in the laundry.  And to spend $10 on a bad sandwich.

swmnguy's picture

Ah, but when a group of wealthy individuals perseveres on a course that doesn't make sense, like building new retail space while existing retail space sits empty, you have to reconsider your assumptions about their purpose.

Maybe they're not really in the business of running retail operations.  Maybe they're really in the business of churning finance, and money-laundering.

post turtle saver's picture

“Thousands of new doors opened and rents soared..."

hmm, wonder why rents would soar... let's dig a little deeper... anyone looked up the rates on commercial property taxes lately? guess what else has soared...

anecdote: we have a restaurant here in town that was in business for 30 some years... selling out and shutting down this year... why? commercial property tax assessment was raised by _66 percent_ from last year... 66 ever loving percent... the owners took one look at that and shut it all down...

as with a lot of these economic canaries in the coal mine... the reason you have bad air in the mineshaft is because the government is pumping the oxygen out as fast as they can... why? because if they don't they're going to go bankrupt

WillyGroper's picture

"commercial property tax assessment was raised by _66 percent_ from last year... 66 ever loving percent... the owners took one look at that and shut it all down..."

that will be the same method to gut middle class homeowners.

especially after communist core is fully implemented & in the hands of the feds...charter skools, with the feds assessing your ad valorem.


post turtle saver's picture

60% of my property tax assessment for this year goes to the school district... 'nuff said, the negative feedback loop is in place and well underway...

ClassicalLib17's picture

You obviously don't live in northeastern Illinois.

Government needs you to pay taxes's picture

Gotta have a gold-plated gym for the chimps to jump around in.  That, plus the finest in metal'n'drug detection equipment at the gates of the school.  Lil' Felonius gonna do real good this year.  He ballin' in dat gym and dey takes his guns at dat doe!

Handful of Dust's picture

School budgets (salaries, etc) are out of control almost everywhere even in neighborhoods where the kids (and teachers) are dumber then a bag of hammers.

I read in Texas property taxes are now about 3.6% in many newer areas and most of that goes to schools.

Not My Real Name's picture

And the teachers work less than ever. Never mind summer vacation, there are so many more minimum days and holidays compared to when I went to school. It seems like my kids are out of the classroom more than they're in it.

And don't get me started on parent-teacher conference week. When I was a kid back in the 70s -- yeah, I'm old -- parent teacher conferences were held AFTER school hours, usually in the evening. Today, they send the kids home early, and conduct them during normal school hours.

If I hear one more teacher cry about being underpaid, I'm going open loop.

Withdrawn Sanction's picture

"...anyone looked up the rates on commercial property taxes lately? "

Spot on.  In my county they also instituted a meals tax a few years back.  There are now very few fine dining restaurants, but plenty of cash and carry joints.  Could be declining incomes, but I doubt it.  The adjacent county's citizens rejected a similar meals tax and they still have nice restaurants that are benefitting from people here voting w/their feet.  So my county has lost the businesses, employment, AND the other tax revenues they would have generated absent the meals tax. 

Moe Howard's picture

My county seat [city] instituted a restaurant meal tax and a carry out booze tax. When I shop there, I don't eat out and I don't purchase booze there.

In Ze No's picture

My significant other is a better chef than all those Sysco reheated flash frozen foods places.  Plus I don't need the extra salt snd sugar they add to mask that fact.

Adios, chains and too many locals trying to compete on price.  You've done this to yourselves.

HarryKallahan's picture



Out of control pensions are bankrupting local governments. And malls don't vote, so it is those tax rates that are jacked to unsustainable levels by some union hack moonlighting on the local town board.

In Massachusetts, teachers, police and fire are retiring with pensions from $70,000 to 120,000/yr. Should the local school develop a leak in the roof, they tear the whole building down and spend $100 million for a new school, "ready for the 21st century."

Malls need low rents to survive. Once they close, their tax contributions drop to zero.

Chauncey Gardener's picture

If it's not the commercial property taxes, or the outrageous rent per square foot, how about the hidden gotcha--CAM/Common Area Maintenance fees? They'll eat a retail entrepaneur alive. 

Peanut Butter Engineer's picture

My business property tax has been going up for the last 10 years, so far the latest payment is $44k not including school district tax or county tax. And I'm in red state Texas!

Arnold's picture

A good quality mens' suit still costs an ounce of gold.
Boots, the same.

post turtle saver's picture

this is an excellent observation... I'm no gold bug but it is uncanny how certain purchases line themselves up with the "ounce of gold" standard over time...

williambanzai7's picture

Actually all the good shit that they carried in the 70s and 80s is long gone. Stuff that you needed to build your own radio or computer. The only shit there now is stuff required to connect cable TV and shitty cell phones.

Silver Savior's picture

Our local RadioShack was somehow spared. The whole store was on deep discount and the the only person in there was the clerk. I got to talking with him and he said this location was saved. As I looked around at the half empty store with no other customers in it I thought how and why. I overpaid for my cordless phone battery that I needed right then and left. Must be company welfare keeping it going because there was simply no other reason.

I am Jobe's picture

What would the sheeples do?  wait Texas malls are now having carnivals in their parking lot. Winning

aloha_snakbar's picture

But do they have a Kim jong un or Obozo the Brown(ish) Clown dunk tank?

StagStopa's picture

Pray walmart is next. What a bunch of empty eyed cocksuckers.


Avreive dei Satanas..


JustPastPeacefield's picture

I relented and gave WalMart another try a month ago to buy a simple scale. Oh my fuckin' Christ, what a bunch of fucking trash. Employees, that is. The customers are even worse. 

I walked out in disgust muttering to myself the words shithole, shithole, shithole. Fucking shithole. 3rd world shithole. 

Last fucking time I'll enter that blue 3rd world hellhole.

I'm also not renewing my Prime this year. Fuck Amazon. Fuck Bezos. I'll be very selective on eBay now. I've had good luck with small retailers there. 

Placerville's picture

They have some of the best prices on oil & oil filters, plus I had two tires dismounted for $5. Can't beat that at any shop.

Withdrawn Sanction's picture

Went to 2 different Wally Marts to get a battery installed in a GM car. First one didn't have the right one (here again, so much for their vaunted data mining prowess).  Second one had it but couldn't install it. It's tucked up near the cowl/firewall.  Admittedly a bit difficult, but after 3 different "techs" looked at it, they concluded it couldn't be installed w/o diassembling the cowling.  So I took the battery and tried myself.  A bit fiddly, but after 3 or 4 minutes, I had it out and the new one in.  Maybe it's just me, but that seems to happen a lot more frequently these days:  when confronted w/an obstacle, people go immediately to surrender rather than working the problem.  Sad. 

Moe Howard's picture

Wally has a list of cars they won't do certain things on, example oil change on a certain VW, tires on a certain Nissan etc. I ran into the roadblock a couple of times, then I stopped asking and went elsewhere. They must figure it based on time and problems encountered etc.

CNONC's picture

Many years ago, my first job was as a general service mechanic at Richway's (an old Federated brand in the south).  If you bought our crappy oil and filter, the labor for the oil change was free.  We had one asshole with a BMW Bavarian, probably an 81 or 82, with a dealer installed A/C. and a cartridge style oil filter.  You had to remove the A/C compressor to change the filter.  After a few times, we told him to take it elsewhere.  Had another guy with a 72 Olds Cutlass with a 455 and headers.  He asked me to change the spark plugs.  I said "sure, $2.00 apiece labor."  I had to remove the left side header to get the last plug.  That's why I don't work on cars. 

CRM114's picture

It's a consequence of the scripted, bite-size schooling almost everyone gets these days. Hardly anyone teaching or instructing is prepared to let the learners struggle for a while, nor know how to gently guide them to working out the solution for themselves from general principles.

Arnold's picture

You're gonna have a hard time in Barter Town.

cheka's picture

hey neighbor!  closest walmart to me is EXACTLY as you described...houston

CRM114's picture

The real advantage of physical stores over e-stores is the advice and care of the staff. Canada is richly blessed (where I am anyway) with expert retail staff, with rare notable exceptions. Over the past year, based on staff encounters, I would say that Sears, Bed, Bath and Beyond, Sportcheck, and Starbucks (secondhand comment, I don't go there) will be closing more shops soon. Stunningly average staff who'd rather talk to each other than the customers.

Target Canada was pretty poor too. Look what happened to them.

Curiously_Crazy's picture

Yeah but with the internet how many people actually need their advice which may or may not be suitable to your individual circumstances.

Even for very cheap purchases I can spend weeks reading up on reports, how it works, how it compares,and if electronic in nature what chipset it uses and then research that chipset. I actually enjoy the process because for the past 20 years every product I've bought I've been 100% satisfied with. Plus it's interesting and you learn a lot.

divingengineer's picture

Go to Home Depot, walk down the fasteners aisle, pick up a box of #6 torx head screws, ask the dumbass "sales associate" kid where the torx bits are located, observe the look of complete dumbfoundment on the little prick's face, walk away thinking to yourself that it would be quicker to just find them yourself. -kid looks confused/irritated and goes back to texting on phone.

That's service in the US.

spiral galaxy's picture

Don't forget the 'Just in time' inventory!! I've never seen a store packed with so much nothing - grills, grill cleaners, grill implements, grill seasonings, etc, etc. Complete BS! Meanwhile I'm trying to get a run of the mill A/C air filter but....???!!... sorry, not in my size! Ditto for bs light bulbs, hardware, house plant fertilizer, etc!! Basically, if it sells fast, stock it! FU retail!!

Xena fobe's picture

Yes, I've noticed that too.  Fast moving or high margin will be stocked.  For all else, they tell you to order it on line.

divingengineer's picture

Could the average millennial even get a charcoal grill lit?

Ajax-1's picture

Associates at Home Depot and Lowe's only approach you and ask you if you need help if they are confindent that you don't need help. If you walk in with a bewildered look, you will be invisible to them.

vealparm's picture

Normally, a couple of bits are in each box of screws.

pparalegal's picture

Just did that yesterday at Lowes. Lag bolts for some 2X4 project. Choked buying a box of 50. But the real insult was out of the first 12, two of the cheap excuse for Chinese painted zinc covered steel snapped off when wrenched down.  The same for the last (and final) Black & Decker sad excuse for a power stapler tool,now made in some slave worker commie basement, that wont penetrate balsa wood.

Bankers & highest bidder sell out politicians 1, me zero.

Moe Howard's picture

I must be blessed, the Homeless Depot near me has three men working there that actually know what they have, what it is for, and if they don't have a suitable item for the application. It is a pleasure to deal with them. On the other hand, the local Lowe's is staffed with exclusively morons.

serotonindumptruck's picture

"In a bid to better compete with Amazon.com..."

Yes, cuz the world could always use another multi-billionaire.


Bill of Rights's picture

RadioShack was the equivalent of walking into a higher end flea market...the downfall was their own making.

rejected's picture

Radio Shack was fantastic until they turned into Cell Phone Shack.

Stan522's picture

Brick and Mortar are being brushed aside for internet sales. Much of their demise has been brought on by a lack of distinction and Amazon Prime.....

Son of Loki's picture

Broke middle class has 90% to do with it. MSM tries to pawn this disaster on e-commerce but the reality is the last 8 years broke the American middle class and policies like Obamacare keep banging at them.

ArthurDaley-OldieTimeTrader's picture

Truth is yes internet sales are surging but every class except the Oligarchy class are not spending. That's why stores are closing. While Amazon's sales are surging they are not completely filling the void of sales not being transacted at bricks and Mortar stores. There is a void and its the beginning of the end of an era..

Md4's picture

I think you're right about that.

Also, the variety and quality of in-store merchandise, coupled with the hassle of working your way through new economic refugees swelling metro populations, is a big turnoff.

However, we can't know what the picture might've been with a booming economy.

Something, of course, we don't have.

if people were actually now buying online at the same rates (volume and dollars spent) they once did at B&M's, let alone more than, I should be seeing a LOT more freight trucks in the neighborhood.

A bunch more.

I do not.