"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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Mitch Comestein's picture

I love one of the charts, they take an estimate and insert it as if it's fact into the chart. The retail bubble has burst, that's a laugh. They have been talking about this for 6 to 7 years. Everyone listen, I wouldn't go short now. You were supposed to go short six or seven years ago. This is where I'll be looking for a bottom. I think the bottom is actually starting to form.

I'm actually going long retail stocks. JC pennies, no.sears, no

If anyone didn't read the story this week, Amazon is starting to put in brick-and-mortar stores. If that's not something that's gonna make you take pause I don't know what will. Begin bashing comments now.

economicmorphine's picture

It's easy to assume that this is a retail problem and that people are simply replacing bricks and mortar with the web, but that's not it.  Drill down to the producers, companies like Proctor and Gamble, Coca-Cola, etc. and you will discover that they're all struggling.  People are consuming less.   There's too much retail capacity, for sure, but it is much bigger than retail.  The real economy is contracting and has been for some time now.

hotrod's picture

YES, and it shows in companies like I Heart Radio bankrupting. Where Advertising revenue is too low to carry their debt.  When Retail, Restaurants and others cut back due to sales, Ad spending drops.  GDP is contracting and has been.  Cant have 100 million out of the work force and a vibrant economy.

MY BIG CONCERN is how are Social Security receipts trending.  Taxes receipts is misleading as Capital Gains can distort.  Social Security receipts in my opinion provide real information on the state of employment and the lack of impacting the economy.

flyonmywall's picture

Repairing microwaves and dryers most of the time is really easy. All you need is the circuit diagram, which is usually inside the rear panel.

Take off the rear panel, and measure the high and low cutoff switches for continuity or resistance. If there is continuity without current being applied, they are bad.

Those are the parts that usually go bad really fast. They're usually a few bucks yeach. Get part number off part, order them online and put them in. Cheap, easy fix.


The Gladiator's picture

Should I disconnect the power first?

Youri Carma's picture

Mattel stock crashes on massive loss and drop in Barbie sales
Apr 21, 2017 Reuters

Mattel shares plunged after the company reported a bigger-than-expected quarterly loss and drop in sales, hurt by poor demand for key brands Barbie and Fisher-Price.

jadan's picture

Most important factoid not included. Have consumers decided to give all their money to the clean dome god of retail, Bezos, or does this retail masacre indicate a collapse of consumer demand owing to a lack of money and the arrival of the the Big Red Con Artist?

Whodathunkit's picture

Amazon makes 0$ on its retail operation. Think about it someone has to pay for free shipping. Free shipping is KILLING amazon. When oil goes back up to $100 barrel free shipping is done.

CRM114's picture

Except oil won't - less people driving to stores.

Yellow_Snow's picture

I guess this news deserves another Dow record cus they're downsizing and cutting costs.

wholy1's picture

'Bout time for . . . "breaking the [corp] chains" - the opportunity for "The People" to increasingly care/share/exchange/trade - each special, unique Man/wo[mb]Man DIRECTLY O-N-E to another - withOUT a third-party intermediary such as NONproductive gov/corp/[expert]academic/[bar-fly 'legal' l[ie]yers/magisTRAITOR/legisTRAITOR and . . . the corp-owned media hacks/whore "AGENTS".

wide angle tree's picture

It's all the same Made in China, vietnam, indonesia sweat shop quality, so I buy almost all my clothes from Walmart. These retailers do nothing and get nothing in return. Without the zero interest rates loads more would go under and all new construction would come to a halt.

Archive_file's picture

I live in my car in San Francisco and buzz around on a scooter delivering food. I keep an eye on what opens and what closes. There is a shit load of empty storefronts now. No one is moving in either. The VC slush money and QE is gone. The 20-somethings have no clue or care. Now the state .gov is going to shove more bond measures at us and accompanying taxes. My only question is "when are they just going to get it over with and start sending vans around with Zyklon-B and start gassing poor people?"

Miss Informed's picture

Why would they gas people with Zyklon B? Do people in San Francisco have lice?

San Pedro's picture

Bay Area and California have become financially gated community and state..it's not going to get better. You might be better of in N.Dakota or Alaska.

Eagle40's picture

I have been reading comments with many blaming the retail collapse on internet sales and Amazon. This major problem is a symtom of something far worse than a consumer using a mouse and clicking for their product on-line.

Why are we seeing the demise of retail? BECAUSE JOBS, WEALTH, AND OUR QUALITY OF LIFE IN THE U.S. IS GOING RIGHT DOWN THE SHITTER. PEOPLE DO NOT HAVE THE INCOME OR CANNOT EVEN MAKE IT PAYCHECK TO PAYCHECK NOT ALONE GO TO FOOTLOCKER AND PAY FOR $300 SHOES. When 75% of Americans do not have $500 in savings for emergencies how can they afford all this shit and junk from China.

AVERAGE  household  income has shrunk $20,000 in the last 30 years while our LPR  is the worst since the 70s. 14 million more on welfare while 8 million more in poverty. 14 million more illegals driving down wages and sucking welfare while JOBS have disappeared overseas due to toxic trade deals like NAFTA. Millennials today make far less money than baby boomers who pissed their money away and destroyed the future opportunities for Gen Xers and millennials.These worthless 401ks have and will not create enough retirement income for older Americans to have a comfortable retirement. If retail goes then grandpa can't greet people at Wal-Mart and get paid that $10 an hour paycheck to supplement his retirement income. WILL SS BE AROUND IN 20 YEARS? Probably not. Health insurance under Obozo Care has hurt families pockets at around $3000 per year more. 

These are just some of the very concerning issues that I believe will eventually put this country into collapse. How about OUR DEBT problem. As more accumulate higher amounts of debt they lose purchasing power. The car loan shit show is at the tipping point of crashing down. 

This is just the beginning of what I believe will be the slow collapse that will take 20 to 30 years before we see the final shit show that will destroy the US and global economies. Look what has happened in the last 20 years. We are still here but have much less and as a result the globalists and banksters have masterfully slowed the collapse so the  masses do not revolt all at once. Millennials are their prime target. Dumb them down, make them poor, give them toys, make them dependent, and do not show them how to be self sufficient. Socialism 101. 

I could write a book on fgiscsad shitnbut as this article emphasizes it's about the retail apocalypse. However, the retail apocalypse is a symptom and future glimpse of a much darker demise in America's economic future. 


Spitball's picture

Just remember, CASH IS KING. I have to disagree with most of your post. The consumer debt in this country is at crisis levels. That I agree with.

People want the latest and greatest, and finace every last piece of it. 40 grand for a new pickup, are fucking kidding me? Then when they get something big with financing, they don't take care of it. When you have nothing invested but a monthly easy payment, your thinking is, I can just finance another. 

Pay for everything in cash, you change your tune very quickly on what I can afford, and what I can't. What's important, and what's not.

I could care less if these trash selling retail stores closed. I don't shop there. 

The flat screen TV I own had a problem a couple years back. Guess what? I fixed it. Saved myself a couple hundred bucks on a new one, and it still works. 

When my older cars break down, I fix em. How many people these days even think about doing anything like that? Not many. What they think about is rolling that old car debt into a new car, hence more debt. Those people get poorer, and the bankers get richer.

No thanks. I'll keep fixing my old shit keeping the money in my pocket, instead of the banks.

whoknoz's picture

No wonder Gender (sic) Mountain is going down the tubes...no one can figure out why they would go there...

To Hell In A Handbasket's picture

Are people stupid, or do the not read, extrapolate and come to a logical conclusion. I've been saying for years and it might just dawn on some of you. 

  1. There can never be full employement again.
  2. Despite gains in human work productivity and yes, despite the rose tinted glasses, we are working more productively than our dads and grand-dads. The job that once took 2 people can now be done by 1, and is increasingly shrinking and with, further advances in technology and automation, the jobs market will decrease further.

Our economic model no longer functions and we need a whole new rethink. 

PS: I forget the rentiers. The rent seeking class, who drive good businesses, out of business, by continually driving up rent for retail space. The government should place rent caps, but oh no, that will damage business. What a fucking contradiction.

Spitball's picture

"What a fucking contradiction."

So is your post. I always think, why do people want government to intervene? The government does nothing but cause problems with everything they touch.

Do you have a job? If you do, just think how much your paycheck with spendable cash would be if it was all yours. The government intervention you so happily want is the reason we're in this mess. They are the biggest thieves in the country, yet you happily proclame they're the answer to your woes.


Spitball's picture

Here's something else for you to chew on. Who gives a shit if retais in a death spiral. We have all these stores selling cheap Chinese shit at a high price. 

No thanks. 

Save more, live on less

patriotinCalif's picture

Nobody is mentioning the rising minimum wage. That is what is killing retail. It's going to be $15/hr here in CA. Nobody can afford that! Right now it's $11/hr. Awful!

Econogeek's picture

There are several small Ace Hardware stores near me (Fla).  Small and expensive.  The salespeople all are extremely knowlegable and most will help you figure out creative solutions when nothing obvious presents itself.  They're almost all old white guys, totally competent.  I gladly pay their prices, would happily pay more.

If there were any independent mom*pop hardware stores, I'd go to them, but the only other places are HD & Loews.  Ace Hardware has done here what Radio Shack (which should have renamed themselves Radio Palace, though somehow Dress Barn has stayed in business) should have done when Apple came out with the i-phone.

BurningBetty's picture

Location, location, location! = Online highways. Physical retailers are dying because of the online shopping.

decentralisedscrutinizer's picture


Why is everybody so afraid to admit that almost all the world’s economic and political problems revolve around the hegemony here in America of the global corporate cartel, which is only headquartered in the US because this is where their military arm resides. The only way to regain our (we People) sovereignty as a republic is to strictly curtail the privileges of any corporation doing business here. The government must be reconfigured to represent the Middle Class if we are ever to restore sanity, much less prosperity. There will be no peace and prosperity in America until we, the good folk, drain the "swamp" created by the US Constitution. The "swamp" can't be drained at this point because the Constitution  does not contain a “drain plug". This is the kind of "plug" it needs. And it needs to be pulled ASAP:




28th Amendment


Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:


1, prohibitions against any corporation;


a, owning another corporation,


b, becoming economically indispensable or monopolistic, or


c, otherwise distorting the general economy;


2, prohibitions against any form of interference in the affairs of;


a, government,


b, education, or


c, news media, and


3, provisions for;


a, the auditing of standardized, current, and transparent account books, and


b, the establishment of a state and municipal-owned banking system


c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.




The biggest hurdle to convening an Article 5 convention will be to silence the 24/7 corporate media propaganda machine which will “guarantee” that a constitutional convention is the sure path to anarchy and chaos. There are so many issues that need addressing that it will be extremely difficult to focus on just one issue: draining the swamp; first and foremost. Just that one thing: get the idea of incorporating business enterprises (or political movements) out of our collective thought process. Incorporation is a subtle, inconspicuous little glitch in our collective philosophical evolution and, as appealing as it is to join groups and let them do your thinking, such groups immediately assume identities of their own and become eternal super-groups with their own agenda and more money than the sum of all members’ total investment. Corporations can’t even be controlled by their own executives; they’re “fictitious persons”, legally, morally, and tangibly. Yes, corporations are comprised of good, church-going, honest, people, while the corporations they belong to, work for, administer, or own, go about the planet (and at home) committing genocide, or worse. You can spend a lifetime fighting legal injustice, global warming, illegal immigration, racial disparity, Democrats, Republicans, Joos, globalization, and bathroom assignments, but nothing is going to change so long as corporate media has your brain in a bottle. If nothing else or until a better organizational plan comes along; try whispering in your neighbor’s ear: “Article 5 Amendment 28. Article 5 Amendment 28. Article 5 Amendment 28” until we all understand what’s necessary and act in unison when opportunity presents….