"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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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.

aloha_snakbar's picture

Even though I think they brought their demise on themselves, I will say that back in the late '70's when I was a young budding electronics nerd, there were not a lot of places to buy stuff for component level repair, capacitors, resistors, etc...or if you just needed some solder... Radio Shack had the market to themselves. They just got lazy or arrogant and did not keep up with the times...

besnook's picture

funny you should say that. i just repaired my microwave and dryer in the last coupla weeks. the parts for both cost less than 15 dollars. if i were to hire someone to fix either the cost would have definitely been a minimum of 100 bucks for the microwave not including a trip to the shop and the dryer would have cost as much as 200 dollars just to replace the belt for a technician to come out to the house.

if i couldn't repair the microwave it would have actually made sense to just replace it. i would have repaired the dryer professionally if it was under warranty but if i couldn't repair it for less than 200 bucks i might have bought another dryer. the dryer is remarkably simple, electrically and mechanically. the microwave is more complicated but still simple and all the parts for both are readily available now where in the past parts were almost always only available to the trade.

HRH Feant's picture
HRH Feant (not verified) besnook Apr 22, 2017 9:05 PM

I am not sure if I would bother repairing my microwave but for other stuff: washing machine, dryer, dishwasher, computer: YES.

My dishwasher was making a horrible sound and I went on Utube and figured out how to fix it. It only cost me time.

Same for my computer and other shit that breaks. I go on Utube, learn, fix.

WillyGroper's picture

mee tooo.

saved lotsa dough.

Moe Howard's picture

I repaired my stove at the 5 year mark for $45 [dual size burner]. My microwave went out at 9 years, keypad, part not sold anymore, couldn't even find used. Found a significant upgrade microwave in the discount isle at Homeless Depot, after chatting up the two female salespeople, I was able to get the combination microwave/convection oven, with sensors etc, for $135! A fraction of what I paid for the broken microwave only OTR unit. Virtually every feature was better on the new one. When they showed me the price I asked if they had two, was going to buy one for spare parts! Last one however.

wide angle tree's picture

The microwaves are so cheap I I don't even bother to clean them. I just use it 10 years and toss it in the trash,

besnook's picture

retail sales have increased by 3.5% in the last 20 years, according to the chart, with the internet taking 80% of total sales today. i am guessing these numbers are not adjusted for inflation. according to shadowstats inflation numbers, if these are nominal numbers then retail sales have contracted significantly when population growth is considered.

these numbers don't include the correlated loss in restaurant and fast food sales(offset somewhat by grocery store sales), gasoline sales and quickie store sales.

the consumer apocalypse is on. what is a bankster to do?

Saratoga's picture

"with the internet taking 80% of total sales today"    80%?????? Not even close. Maybe 8%.

People are tapped out BROKE. That is what is going on.

besnook's picture

the chart says internet sales are 40+ billion and brick and mortar sales are approaching 10 bil. read the chart.

Berspankme's picture

That is only department stores. Internet is still small compared to retail

besnook's picture

the chart says retail sales not department store sales.

Son of Loki's picture

Anyone in e-commerce is also seeing huge slowdowns over the last two three years. Prices have been cut over and over again even on the internet and people simply cannot afford even cheap stuff. Plus, shipping costs have sky rocketed.

Anteater's picture

Try this trick with Amazon: search until you find what you want, as long as it's In Stock. Put it in your Shopping Cart, then click away to Jet.com or use Google to search for that item, it will throw out web links to other low-price options. Now click through almost to 'Hit Enter to Purchase on that discount site', then again, click away to Google, and this time when you run the search, pick Amazon from the link, (don't go back to your first purchase page). You'll find the price has magically dropped to just above the deep-discount store. Amazon screws you on the shipping and sales tax, and half the time you get a returned or used item or fake or last year's version, but at least you didn't pay Ivanka prices.

Richard Whitney's picture

Good advice. Also, don't let the Prime shipping deal fool you.

You see the price on Amazon, see 'shipped for free via Prime' and think that is the best total cost.

Not necessarily. Sometimes AMZN offers the goods at a higher price than you would pay elsewhere even after paying elsewhere's shipping.

Handful of Dust's picture

Another good advice is be very very careful of "Newly Launched Sellers". many of these are scams and even give you a fake tracking number. Several ecommerce blogs say find your stuff and look for a seller with a solid history maybe >50 feedbacks. The Fake Sellers will even give themselves 5-10 positive feedbacks so they look legit, the article says but read the language in the feedbacks...many times the grammer shows it's fake.

Plus, if the price is unreqalistically low (like a $298.00 bicycle for $32.95) then most likely a scam.

I check around then then buy only if the Seller has >100 feedbacks and a >90% positive rating.

Amazon is really good for me for stuff that's hard to find near me like Amla powder, or special sized shirts for my dad. Shipping is fast.

And, honestly, the malls are no fun anymore. All black, mexican and brown foreigners and their parking lots are not the safest even in the mornings.

CNONC's picture

Clearly something wrong with chart labeling.  Total retail sales in US is obviously greater than the $60 billion suggested by the chart.  I suspect the chart is actually sequential sales increases.  Total retail is about 4.7 trillion, with about 9% e retail.   https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

coast1's picture

everyone is using their damn fucking credit card.  sorrry for the language but sometimes it fits.

veeger's picture

richard haynes , urban outfitters ; ceo...........is that where a person can buy body-armor , 9 millimeters , ak 47s , jet-powered skate-boards , hemi-powered dodge darts, ....or what ?

divingengineer's picture

No, I think more like faggy skinny jeans that they wear out for you, so you don't have to go to the trouble of wearing them out yourself.

buckstopshere's picture

Retail will make a comeback when they hire attractive salesgirls who can show the goods.

divingengineer's picture

"Step aside momma, I wanna see some of that muff!"
-Dudley Dawson "Booger"

sinbad2's picture

I can remember 4 gas stations all in a row, all competing against each other. One of the owners employed pretty young girls to pump the gas.

There was a queue going down the road to get gas from the babes, whilst the other outlets remained empty.

Sex sells

alfredhorg's picture

Was gas the only thing they pumped?


When SHTF, go long janitorial services!


Moe Howard's picture

When I was in Panama, I went to a repair shop to have an exhaust system put on my Bronco II. They had a tire / rim shop attached, staffed by hot young women in skimpy clothing. Sales were booming! I even considered a set, and I didn't need any. It seemed to me at the time this was a business model that would work well in the USA.

TwelveOhOne's picture

In Florida, ladies in bikinis were selling hot dogs by the roadside, and legislators passed (or tried to?) a law to remove them.

Might have been jealous legislator wives... :)

zzzz88's picture

short bank stocks!

behind retail stores are bank loans. just like the crude oil dropped since 2014 led bank stocks drop. it will be the same this time. 

that is why goldman sachs insiders sold lots of stocks in the last couple of months when retail fools jumped in. 

SantaClaws's picture

And the Barron's issue out today says to buy the banks...

zzzz88's picture

hahaha. did not you know baron is an accurate contrarian indicator??? check the history, my friend.

Arnold's picture

Good on ya.
Doing the job I won't do.
Barron's, Fortune and WSJ.
Staples gone into the roadside ditch.

erk's picture

It's just the expected closures caused by globalization, much more to come.

The US is the promotor of low tarriffs and free trade agreements, this is how they come back to bite.

The real job killer was cheap international freight, often  due to subsidies.


groundedkiwi's picture

This is why Ports are on tge list for Corps to buy. There are always landing fees. Greece is a typical example of selling the family jewels.

JLM's picture

Simply over built.  We come down from Canada to just north of Detroit to visit a family member and are amazed at the number of retail outlets.  Several Walgreens, Targets, etc all duplicated within 5 miles of one anaother.  Do people refuse to shop if they have to drive 10 miles to get to a store?  It's over the top in truly american fashion. 

divingengineer's picture

Nobody does dumbass like us.

Gallumhrasha's picture

Yea but Ill kick your ass if you say it to my face!

ThrowAwayYourTV's picture

Theres only two stores that I care about, Lowes and Home Depot. Because UPS doesn't deliver {50} 2x4's {100} 2x6's {35} 2x10s and a stack of 3/4" T&G plywood. Or 3 tons of pellets for my pellet stove. I have work uniforms that I wear all week and two pair of blue jeans that I have worn on weekends for years and years.

Other than that, I'm good with the plastic and shiney stuff going away.

CHoward's picture

I guess I have shit for taste because I've never, ever been to able to shop at every damn store in my area - there's just too many choices.  Someone has to go under.

hotrod's picture

Seems like they would wait and see how Christmas sales are, tax reform is next week right?  Everyone will be flush with cash

Yen Cross's picture

  Back in '08 when the residential markets blew up, people I knew including myself asked why Commercial real estate didn't get hammered.

 The answer was always the same>>> "Capital requirements and financials are much more stringent for commercial R/E deals."

 Yeah right... Now all the "write offs" have been amortized, and we have a huge amount of excess commercial R/E capacity.

 It's NOT just retail... It's industrial, and office as well.

   Good luck with that infrastructure program, Orange Jellybean.

Yen Cross's picture

  Is there a pissed off Commercial R/E broker in the crowd?

   Commercial real estate is levered up, beyond belief!

  Shorting Commercial R/E REIT's are where it's at. You get the added benefit of shoving a Whale Harpoon> up some banksters, insurance companies, politicians, ASSES in the process.

  They're all "asses and elbows", deep in the Ponzi...


WillyGroper's picture

"You get the added benefit of shoving a Whale Harpoon> up some banksters, insurance companies, politicians, ASSES in the process."

moby sized schadenboner.

Yen Cross's picture

 Nice[extra sharp]>schadenboner

GreatUncle's picture

Commerical is mainly rental, nice little earner.

Then it does seem like the companies doing this now like to reside in Canada for favourable tax conditions.

Friend has a business, renting the commerical propoerty changed hands.

Owned by someone in Canada, rents start to rocket 3 years now so friend moved (on advice) ASAP to stabalise economically.

You cannot get a stake in middle street if you cannot reinvest any excess if the  Landlord had it all.

post turtle saver's picture

"... and we have a huge amount of excess commercial R/E capacity."

and city / county government is taxing it like there's no excess at all with assessments that have gone through the roof... so, who's going to buy it and use it / rent it out when they know the property won't generate revenue to justify the tax bill?

government policies run amok again... every time you peel back the symptoms you find bad government policy and nefarious taxes at the core... this is what happens under 24 years of Democrat/RINO administrations... I agree, there is no way Trump is going to unwind this even if he manages to get two terms under his belt (unlikely)...

incentives in the US are skewed beyond belief... if they wanted to put in tax programs etc. that would discourage business growth and otherwise productive behavior, they've accomplished their goal... SAD