The Amazon Effect: Retail Bankruptcies Surge 110% In First Half Of The Year

Tyler Durden's picture

As Amazon flirts with a $500 billion market cap, letting Jeff Bezos try on the title of world's richest man on for size if only for a few hours, for Amazon's competitors it's "everything must go" day everyday, as the bad news in the retail sector continue to pile up with the latest Fitch report that the default rate for distressed retailers spiked again in July.

According to the rating agency, the trailing 12-month high-yield default rate among U.S. retailers rose to 2.9% in mid-July from 1.8% at the end of June, after J. Crew completed a $566 million distressed-debt exchange. Meanwhile, with the shale sector flooded with Wall Street's easy money, the overall high-yield default rate tumbled to 1.9% in the same period from 2.2% at the end of June as $4.7 billion of defaulted debt - mostly in the energy sector - rolled out of the default universe.

In a note, Fitch levfin sr. director Eric Rosenthal, said that “even with energy prices languishing in the mid $40s, a likely iHeart bankruptcy and retail remaining the sector of concern, the broader default environment remains benign."

He's right: after the energy sector dominated bankruptcies in the first half of 2016, accounting for 21% of Chapter 11 cases, in H1 2017 the worst two sectors for bankruptcies are financials and consumer discretionary.

And if recent trends are an indication, the latter will only get worse as Fitch expects Claire’s, Sears Holdings and Nine West all to default by the end of the year, pushing the default rate to 9%. "The timing on Sears and Claire’s is more uncertain, and our retail forecast would end the year at 5% absent these filings," Rosenthal wrote.

Putting the retail sector woes in context, Reorg First Day has calculated that retail bankruptcies soared 110% in the first half from the year-earlier period, accounting for $6 billion in debt.

The list includes name brands such as Gymboree, Payless, rue 21 and the Limited, all of which cited the Amazon affect as a contributor to their downfall.

“Many retailers have echoed the familiar cries of those that filed before them—the proliferation of online shopping, rapidly deteriorating brick-and-mortar retail, the rise of fast fashion, hefty lease obligations and shifting consumer preferences,” Reorg First Day said in a midyear review.

While it is far from empirically, and certainly scientifically established, every incremental retail bankruptcy should add approximately $5-10 billion to AMZN's market cap, further cementing Jeff Bezos as the world's richest monopolist man.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
curbjob's picture

How is Amazon and Walmart  not the definition of monopolies ?

Creepy_Azz_Crackaah's picture

Amazon and Walmart don't have exclusive control of anything.  People who don't care whether local businesses to fail buy from them.  They have a choice.

A long time ago I used to think that owning commercial real estate was a great way to do well.  I don't think that any more.  I see a LOT of vacant retail now.

Creepy_Azz_Crackaah's picture

As a regular ZH spammer who can't afford to pay for advertising you must know very little about doing well.

2000's picture

Teavana just announced the closure of all 379 of their stores.

Shocker's picture

Once Mom and Pop stores are gone, then all the low prices at Amazon / Walmart will slowly go away.

Support your local small businesses.

Layoff / Closing List: http://www.dailyjobcuts.com

-

armada's picture

The CURSE Effect: America's Bankruptcies Will Continue To Surge Until Kaboom

http://biblicisminstitute.wordpress.com/2014/07/17/is-america-cursed/

winged's picture

Forget Amazon. The economy overall is in the doghouse.

Son of Loki's picture

That's my understanding also. If Americans were not Broke Donkeys, there'd be plenty to go around for Amazon as well as the B&M. People used to enjoy going to mall as entertainment and perhaps buy a little something. No more.

Americans are broke and malls/parking lots are too dangerous. The economy for many many people is a disaster and tghen you add Obamacare and it's fatal to many.

8 years of extreme fanatic left wing politics and Obamanomics has consequences.

It's shameful.

Gazooks's picture

son, it accelerated, but didn't begin

 

with Osamanomics

 

RIP Glass-Steagall

Michael Musashi's picture

I think it's a combination of things, but Amazon's hyperactive globalization model is definitely in the Top 5 reasons.

Retired Guy's picture

The millenials in large numbers have opted to spend their time enjoying the internet, drugs and video games in mom's basement. Without house and family what do they need at the mall? Have you seen all the excess clothing at patio sales. Does anyone really need to buy clothing for every style change some corporation dreams up? The mall stores pay hideous rent. They have to charge high prices. Fortunately I don't have to pay their rent by buying from them. The mall decline would happen even if Amazon didn't exist.

TuPhat's picture

Internet sales are doing well because the brick and mortar stores fail to keep their stores stocked properly.  I have been to Lowes, Home Depot, Walmart and a local lumber store to find the grass trimmer that I wanted.  At the first three stores the product they supposedly stocked was not available.  At the local lumber store they didn't stock the product I wanted but it is available on the internet.  If they run their business right they won't lose sales to the internet.  I have to drive an hour to get to a Lowes or Home Depot.  That doesn't happen very often anymore since they don't usually have what they say they have when I look online.  The store clerks apologize and say the product should be there because the computer says they have several in stock but none can be found.  I get tired of that real quick.

waspwench's picture

We are well on the way to having the entire world owned by a couple of dozen big corporations, or less.   And that is the plan.   Total control of all us proles.

Graph's picture

According to high number of ZH-ers that's final stage of Marxism.

I know..I know...

 

Cloud9.5's picture

With just in time inventories, we saw the end of warehouses.  With the rise of big box stores we saw the end of mom and pop stores.  With the rise of Amazon, we may see the end of big box stores.  When supply chains break, where is the store of food?  I do see Dollar General type stores popping up like mushrooms.   Maybe decentralization is the reverse trend in retail.

JRobby's picture

Small retail will always be around because people have an entrepreneurial spirit and positive attitude. Some make it, some don't. God bless them.

The "big boxing" era seems to now be over for now.

FixItAgainTony's picture

"Big box" replaced by the "web box" and eventually one corporation to rule them all.

The ultimate expression of crony (non-Adam Smith) capitalism is indistinguishable from a politburo centrally planned soviet economy.

_triplesix_'s picture

Maybe the least shocking bankruptcy in the history of retail.  Overpriced Tea?  To Americans?  As your only source of revenue?

Abbie Normal's picture

Charging $50/lb for tea that's $15/lb in Chinatown is not a viable business model.  Using the Starbucks model doesn't work with tea because Asians aren't as gullible as westerners when it comes to the price of their favorite drink.

JackT's picture

So all these dollars shifted to Amazon? Naaa..not buying it (pun intended)

Abbie Normal's picture

That's very true.  half the companies on this list sell products that aren't readily available through Amazon.  So they were going to go under in a bad economy even without Amazon, but it's nice to have a scapegoat.

Offthebeach's picture

That was said about Sears, Roebuck in the 1880's, Woolworths before WWII,  K-Mart in the 60's...

JRobby's picture

All gone, Sears circling the bowl.

Unfortunately, Amazon will be around for a while. Hopefully Bezos won't be. He is a sickening being (left out human)

Bay of Pigs's picture

Choices you say? I think you ought to explain why they have been permitted and able to get so incredibly large and destroy so many small businesses all across the country.

Fuck them both.

Advoc8tr's picture

if nobody shopped there it wouldn't be so. He is correct - they do not have a monopoly by regulation.  Once again the dumb ass herd is the problem.  Just stop shopping at Amazon if you object to their size advantage and if enough people give a fuck the problem is solved.  Asking / demanding the government to solve every problem with regulation is what got us into this mess in the first place.

Justin Case's picture

able to get so incredibly large and destroy so many small businesses

I'll take $100 for "What is capitalism"

Capitalism is based on the private ownership of the productive forces by anyone that wants to own their own business?

Sorry wrong!

Capitalism is a society where billionaire capitalists own vast companies, banks, shares, and much of the land as well. Elected governments are bent to the will of the big corporations which the capitalists own. To achieve genuine socialism, this ownership of the world's wealth by the 1% must be ended. Capitalism means that a great deal of our society's resources, needed to produce the things we need, are privately owned. Buy and destroy any competition at any cost.

Next.

 

 

 

new game's picture

Choice you say? not really. china junk quality proliferates those choices. even the high quality brands like toyota, honda, lg, miele, ect have cheapened. try to buy quality? still some of the "made(assembled) in usa" stuff is "better" quality. but,still we are in a disposable society by design...

not to mention planned obsolessence...

curbjob's picture

They certainly do have control over pricing from their vendors.

They both routinely threaten manufacturers with contract cancellations which, since they often represent such a large piece of a suppliers production, would essentially put that company out of business. 

I understand that pricing is often based on quantity ,  but both these companies (and others) use what amounts to extortion to destroy the competition . 

 

Give Me Some Truth's picture

I wonder what percentage of children's bicycles are purchased from Wal-Mart?

wizteknet's picture

Most all Walmart's bikes are made by Pacific Cycles and most of all they break within a year...

RedBaron616's picture

Bleach is bleach. People that insist on a brand of bleach just pay more for nothing but a name.

curbjob's picture

Free labor.

When you see product displays at Walmart stores in right to work states, very often that merchandising is done by the supplier at no cost to Walmart, while the same product delivered to a mom and pop business requires the hiring of someone to stock and merchandise.

If you aren't prepared to merchandise, go fuck yourself. Now how does say a wine importer, compete with other importers when they're shut out of the biggest market in the US ?
waspwench's picture

True.   Walmart virtually destroyed Rubbermaid with that ploy.

Offthebeach's picture

Sold to Wal-Mart.  Went to Benton twice a year.  Very fair.  Good service on their part.  We had...3-5 SKUs.  Other major world wide dominator, like P&G size with 30+ SKUs right with us, wanted our little few spaces.  Told Wal-Mart, us or them.  Wal-Mart told them walk if you want, we stay.  Never forgot that.

_triplesix_'s picture

Glad that was your experience, as my conversations with other vendors have told a very different story.  Maybe they squeeze the big guys even more or you had something they really, really wanted.  I'm still not sure I believe they did it for completely altruistic reasons in your case.

JRobby's picture

Wal Mart practices with vendors has been well documented. They break the law. The law is no longer enforced. And they are not the only one's doing it.

yogibear's picture

Plenty of vacant , "For Lease" store fronts.

More every year.

FoggyWorld's picture

And with robotics and automation we can only expect to see more.

But Amazon's pricing is not at the bargain level it once was at and so as he captures more and more of the market, we will have so many fewer alternatives and will pay more.

Justin Case's picture

United States has the most retail sq ft. per person in the world, at 33 sq/ft. per person. Canada for example has 5 sq/ft.

afronaut's picture

That has a lot to do with 80% of the country being uninhabitable 

pitz's picture

Nah.  It has to do with Canada not spraying unlimited amount of capital at retail and retail real estate developers.  The bar is actually set a little bit higher in Canada for starting and running a sustainable business.  Strip malls full of nail salons aren't that common.

CheapBastard's picture

Despite tons of empty strip mall space, somehow more strip malls are being built. Every few blocks there's another one with almost the same stuff; nail parlor, Pho Noodles, Postal Store, donut shop, cleaners, iol change/car repair place, Starbucks, etc.

 

Who finances these additional malls when there's gobs of vacant spaces already?

dark pools of soros's picture

The old barren malls are owned by non-jews while the jews get free money and land to create new malls... scholom

Justin Case's picture

It uses number of people per square foot of retail space.Add up the malls in sq feet and divide the population by that. Can you grasp that?

How did you get so confused with land in the factor? Merican I take it? Even China has less sq/ft of retail space per person. Can ya figure that out?

Abbie Normal's picture

maybe because reading comprehension is not a required skill to graduate in the USA.