Here's How The Next Recession Begins

Authored by Simon Black via,

In 1886 there were only 38 states in the United States.

Electric power was still cutting edge technology that few people had ever seen.

The Statue of Liberty hadn’t even been dedicated yet.

But it was that year that a man named Richard Sears founded a small retail company in Minneapolis, Minnesota that would grow into a retail juggernaut.

Sears was truly the Amazon of its day.

Even in the late 1800s the company was able to deliver just about any product you wanted right to your doorstep.

This was no small feat considering the first delivery truck wouldn’t be invented until 1895. There was no transportation infrastructure. And two-thirds of the population lived in remote rural areas.

Yet despite those challenges, Sears was still able to put any product you wanted in your hands.

Over time as consumer trends changed, the company started opening physical retail stores.

And once the concept of the ‘shopping mall’ became popular, Sears department stores became a mainstay at malls across America.

To give you an idea of the size and dominance of Sears back at its peak– the company owned stock broker Dean Witter Reynolds (now part of Morgan Stanley), Coldwell Banker (real estate brokerage), Allstate Insurance (currently a $33 billion company) and it started the Discover card (a $22 billion company).

Sears seemed unstoppable… a company so large and powerful that it would rule retail forever.

Then Wal-Mart entered the scene.

And after years of focusing on efficient logistics and cost savings, Wal Mart eventually outmaneuvered Sears to become the world’s largest retailer.

By 2001, Wal-Mart’s revenues were about five times that of Sears.

Then Amazon was founded… and consumers began changing their tastes to shop online.

Sears totally missed the trend. And today the company is a tiny shell of its former self.

Over the past three years alone, Sears has lost more than $5 billion. And its stock price is down nearly 75% since 2014.

Plus the company has had to lay off more than half of its peak workforce, around 200,000 employees.

To add insult to injury, the company spent about $6 billion over the past decade buying back its shares at prices as high as $174 a share.

Shares now trade below $9. That’s a 95% loss to shareholders.

Sears recently announced it will close an additional 43 stores (on top of the 265 closures it already announced this fiscal year).

This will leave the company with 1,140 stores – just above half its 2012 size.

This is a death spiral. And it could mean the sudden loss of 140,000 American jobs.

And that’s just Sears. We could see several, large retailers shutter causing hundreds of thousands of lost jobs.

Retailers have announced more than 3,200 store closures this year. And investment bank Credit Suisse expects that number will increase to more than 8,600 before the end of the year.

For the sake of context, the WORST year on record for retail store closures was in 2008 when the global financial crisis kicked off.

But even in 2008, only 6,163 retailers closed.

Bear in mind that about one in 10 Americans works in retail.

And given the rise of e-commerce, most of those retail jobs are going away. Quickly.

E-commerce currently accounts for 9% of the approximately $22 trillion in annual retail sales, up from 0.6% in 1999.

And that number is only growing.

Most retail stores operate very LOW margin businesses. They rely on having LOTS of customers in order to stay profitable.

If even a small percentage of their prospective customers stay home and shop online, they’re finished– from Sears all the way down to the small mom and pop stores.

We could see hundreds of thousands of retail workers lose their jobs as companies like Sears fail.

Sure, e-commerce will pick up some of the jobs.

Large e-commerce companies like Amazon have had to quickly build infrastructure and warehouses to serve customers around the country. That requires lots of hiring.

But it’s temporary work.

Think of it this way: it took a lot of men to lay railroad tracks across the US. It takes far fewer workers to maintain the rail system.

And as shipments increase, you simply run more cars across those tracks.

Plus, e-commerce warehouses are becoming more automated and efficient, requiring less human labor than ever before.

This sort of creative destruction and disruption isn’t anything to be afraid of; there aren’t exactly too many blacksmiths and buggy repairmen anymore either.

Progress occasionally requires the decimation of entire industries, and that’s what’s happening now.

In the long-run it’s better for everyone. But shorter-term, there’s going to be a lot of pain.

Some of the largest and most vulnerable retailers include Sears, Macy’s and JC Penney, and in total those companies employ close to 400,000 people.

All three of these companies could – and probably will – go bankrupt. But it would only take one of these stores going under (a near certainty) to roil the US economy.

You may remember during the US Presidential campaign that candidates Trump and Clinton made a big deal about the declining number of coal jobs in the US.

To put things in perspective, the US coal industry employs just over 76,000 workers.

Sears alone employs almost double that amount.

And the pace of job losses across the entire retail sector is gaining steam.

The US economy has been in ‘recovery’ now for more than eight years, i.e. it’s been nearly 100 months since the end of the last recession.

Yet the average time between recessions in modern US history is 57 months, according to the National Bureau of Economic Research.

In other words, the economy is overdue for a recession.

And the rapid loss of hundreds of thousands of jobs could certainly end up triggering it.


LotUnsold Aug 22, 2017 10:33 PM Permalink

"Progress occasionally requires the decimation of entire industries, and that’s what’s happening now... In the long-run it’s better for everyone. But shorter-term, there’s going to be a lot of pain."This is completely wrong - though plenty of people sagely agree with it because it has been peddled as a foundational economic truth for at least 50 years.  Most of the problems we are experiencing now have their genesis mainly in the 1980s.  In the UK we were told we were moving to a more efficient 'service' economy which was the 'modern thing to do.  In fact these 'services' used to exist inside the large conglomerates and usually simply got spun out of the company to provide some much needed capital.  No more planes or cars were being built, but the double counting of the turnovers of what were now two businesses meant bonanza time for banks. In fact this is where the real massaging of numbers begins, both in government but particularly in banking, being the ground floor for today's ponzi schemes.  What this supposedly beneficial rationalisation has done is to either denude countries of much needed industries or fracture the manufacturing process to such an extent that no single product can now be built in a single country outside of the Far East.  Perfectly good industries like steel, coal and car making were quite simply handed over to foreigners.  How valuable would these be now to America if they existed and wanted to get out of this economic depression?  Because they don't, and because the jobs and middle class that went with them has been eviscerated, you (and we) are forced to live in the fantasy economy being presented to us by governments and banks.  The response to this, of actually adding value by making things, is no longer available.  No one can say that it was a wise move; unless, of course it was your intention to remove power from all sectors apart from banking.

Catullus Aug 22, 2017 10:10 PM Permalink

The traveling salesman, the department store, the supermarket, the discount wholesaler, sears, Woolworth, wal-mart, the discount club, Amazon, trunk club.

It's been going on for 170 years. Something will come along that destroys Amazon too

attila404 Aug 22, 2017 9:36 PM Permalink

I hate sopping. Who has time for that? Housewifes sucking off their husbands maybe. I want something, I click and then go pick up my shit a day later.

To Infinity An… Aug 22, 2017 8:38 PM Permalink

What an ignorant article. It's not hard to see why we are in the position we're in if people like this moron actually are considered intelligent.There is ONLY ONE reason Amazon even exists. Government favorism.Amazon is nothing but a government sponsered business. Bullshit you say... OK, answer me this... Why do taxpayers subside EACH PACKAGE Amazon ships $1.60?The United States Post Office has given Amazon a "for you only" deal. They arrange you and I to help Amazon take me out of business.People think Jeff Bezos is somehow a smart person.This guy has run a company for over 20 some years and has never been able to turn a profit. If it were not for free money (ZIRP) financed by the government he would have been out of business in 6 months.Every day more and more people lose jobs to this MF'er. And yet he is, depending on day to day, the richest person in the world.What a fucked up place.

newworldorder To Infinity An… Aug 22, 2017 11:35 PM Permalink

USPS has more delivery capability in every nook and crany of the US. it simply sells it to Amazon. Got an Amazon delivery a week ago on Sunday. You asked who will be next? Almost every Corporation that sells through Amazon. While they now collect same tax as any Corporation selling product on line, - they can offer free shipping. Compared to the actual manufacturer selling on line, Amazon can sell the same product and win the sale with free shipping.As for Sears, - they ignored every Management warning possible on Walmart and Amazon. They were warned on Amazon as early as 2007 at an Executive meeting. The person who warned them got the usual polite hand clapping and a nice lunch in the Executive Part of the Dining Room.  Nothing changed and the company got sold to Lambert

In reply to by To Infinity An…

itstippy mpcascio Aug 22, 2017 6:10 PM Permalink

There is no "landlord" per se.  The malls were financed by bond issues purchased by Real Estate Investment Trusts, and the holders of the debt paper are all over the globe.  Meanwhile, the municipality that the mall's located in calculated they'd get $500K annual in real estate taxes from the new mall, so they immediately used that projected revenue stream to borrow (via bond issues) $50M and spent it on school renovations and an indoor hockey rink.  Developers quickly raised $100M in borrowed funds to develop the surrounding property and build Hooters and Toys-R-Us and Burger Shack and Lube Dude franchises, which were quickly snapped up by entrepreneurs (with borrowed money) who expected robust business due to their close proximity to the new mall.All of this credit paper, amounting to over $1B, is floating around in pension funds, insurance companies, hedge funds, and National Consolidated ACME.There is no "landlord" who can lower the rent.

In reply to by mpcascio

Sudden Debt Aug 22, 2017 5:38 PM Permalink

It's exactly what the Americans want.Americans don't want jobs!Americans want free money and sit on their ass all day.These online retailers don't stand a chance in Europe or the rest of the world.People still like other people. In America... not so much...  So why should you have a job when you don't mind destroying other people's jobs while supporting a lower then low minimum wage? The answer?Just watch some more TV where some idiot makes millions by doing nothing and think... that should be me...Americans better prepare to live in a 3rd world economy because that's what's comming and the rest of the world will keep turning.America shows a total lack of the mentality to chance. They feel the rest of the world should change.All the wealth of America is gone. Shipped overseas in return for plastic crap that's now in some landfill.And the more that the people realise it, the more radical and hatefull they'll become.It's like the guy who beats up his wife and doesn't understand why she's leaving him for somebody else. 

SweetDoug Aug 22, 2017 5:40 PM Permalink

'''Had to move to a small town to look after me mother and missed the ease of purchasing shit in the city, like going to a computer store.The ability to buy shit, like a VGA cable for a decent price, =$30 is now gone. It's a 90 mile round trip and gas to do this now.I'll buy online! Tiger Direct was about $30 for a cable, 25 ft.I checked Amazon. A 25 foot cable, with the stereo connector, was $21.5The 50 footer? $22.50Free shipping.Amazon and online will wipe out B&M stores. And if it doesn't? Web based VR certainly will in 5-8 years.OJOV-V

SeaMonkeys Aug 22, 2017 5:13 PM Permalink

The jobs that can pay are increasingly in tech and information. These require education. The public university system was basically tuition-free for students. The cost of running the institutions was a fraction of what it cost to run a university today. The high cost of living includes the high cost of inputs for business and firms. These high costs are rooted in the concentration of ownership thru monopoly and thru access to cheap credit by elites. Competition is the enemy of monopoly and drives prices down. More people and firms are able to particpate productively in the economy while the cost of living decreases and wages increase. Quality education for all Americans must be free, as well as healthcare. The average person in America has little disposable income after taxes.Earned income tax should be zero as well. Taxes should be much higher on the private use of public factors of production.Our entire economic philosophy in America has been corrupted and turned upside down. Working class people have been cheerleading for the swamp for decades.The Democrats have fooled their base into thinking they can help the working class for decades. Nobody believes them anymore.The Republicans fool their base into thinking the populism the GOP pushes is real. It's not. It's fake.The answer to our economic and social problems begin with asking the question 'What is wealth and how is it created?'

Benito_Camela Clycntct Aug 22, 2017 8:14 PM Permalink

Look at it this way - I am paying hefty taxes, and I'm guessing there's a 50% chance that you are too. Would you rather have your kids benefit from these taxes or would you rather them go to bailing out Wall Street banks, corporate giveaways and most importantly the drug war/MIC? The word "free" is a misnomer. I want a smaller, more transparent government that focuses on providing real security and services for its citizens. What we have right now is an obscure behemoth that, in the case of the MIC and drug war apparatus sees citizens as enemies and siphons wealth from working Americans and primarily redistributes it UPWARDS to the MIC and Wall Street. 

In reply to by Clycntct

Nobodys Home SeaMonkeys Aug 22, 2017 5:24 PM Permalink

Many good points. Although there is a lil bit of socialism in them. We are half way to socialism already and I don't agree with it. I'm not looking forward to becoming Venezuela.
Also...There is very little quality education in America.
Free Healthcare? If we had "free" healthcare taxes would be 50% of income. I don't use healthcare. I provide my own myself. I don't wish to pay for yours.
Anyway. Nothing is "free". Good luck. Keep your head down. I'll probably be shooting at it.

In reply to by SeaMonkeys

Herdee Aug 22, 2017 5:04 PM Permalink

Add-in a mortgage tax deduction "modification" being considered right about now. Why? The federal government is insolvent, they will find ways to screw the little guy for more taxes as they head towards default or hyperinflation through infinite money printing. Eventually it will be zero because of no plan to finance their unfunded obligations going forward and no tax money to pay for any of the liabilities. It's a slow-mo train wreck coming.… 

ToSoft4Truth Aug 22, 2017 5:01 PM Permalink

Sears doesn't have a union - otherwise they'd get a bailout just like GM.   Since they didn't have a union, Cramer sent Eddie for a controlled looting. 

Benito_Camela ToSoft4Truth Aug 22, 2017 8:13 PM Permalink

Did Goldman have a union? Citi? AIG?  In any case, the union pensions may have been the cited reason for the bailouts, but let's get real. The American firms were making shitty cars that got horrible gas mileage and then the economy tanked and gas prices skyrocketed. Nobody wanted the gas guzzling American cars all the sudden. It wasn't the union's choice to adopt that corporate strategy. It was the elites (large and institutional shareholders greedily forcing decisions to build high margin/low efficiency vehicles) and upper management at the automakers. 

In reply to by ToSoft4Truth

J Mahoney Aug 22, 2017 5:00 PM Permalink

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STOP THE RETAIL JOB LOSS AND RETAIL REAL ESTATE BUBBLE FROM POPPING TOO FAST ---IT IS TIME TO UN-SUBSIDIZE  EBAY, AMAZON, AND THE CHINESE MIDDLE CLASS AND HELP THE USA TAXPAYER We NEED TO IMMEDIATELY DO AWAY WITH a little known Asian subsidy which is KILLING us folks but enriching the richest man in the world (Bezo) and making a middle class in China. Did you know a small package sent by an Asian online seller only cost them about $1.00 vs the $20.00 we would have to pay to send a package to Asia. We even provide tracking services on that freaking package. This was pushed down our throats thru the “heavy lobbying” by Ebay and Amazon. DO AWAY WITH the “Bezo Subsidy” or more easily thought of as “BS” --  Just the headlines about retail store closings tell us about jobs being lost and commercial real estate getting ready to tank, (Store closings---just a few—Penny’s 130-140 stores, Sears/Kmart 150, Macy’s 100, Foot Locker 100, Kohls 16, Office Depot 200, Abercrombie 114, BCBG 118, HH Gregg 88, Pier One 100). Without this subsidy, brick and mortar store would INSTANTLY be competitively priced on THOUSANDS more items. Problems with this is: 1) Post Office loosing hundreds of millions delivering these cheap packages (taxpayers left holding the bag making up for their losses and eventual USPS pension shortfalls) 2) Uninspected goods come in, many of which are in violation of intellectual property laws and safety regulations. 3) USA stores can’t compete- thus many previous full time jobs in retail have disappeared altogether or with lower paying and reduced benefit part-time jobs. 4) Foreign online sellers are NOT paying any sales tax, income tax, or tariffs like the importers in the USA. 5) Lost jobs equals social security taxes NOT COLLECTED--another freaking problem waiting to rear its ugly face. TRUMP—do away with only this one unfair trade deal and positive results will be felt FAST in our economy.

Rebelrebel7 (not verified) Aug 22, 2017 5:02 PM Permalink

The problem with retail, aside from incredible lack of disposable income for the majority of the population, combined with high debt levels, and low labor participation rate is the stupid reliance of automatic inventory reordering through computers. It is fine to use it as a tool. To completely rely on it is an enormous problem, particularly because many inventories are serviced by distributors, sabotaging competitors merchandise in the grocery stores, placing their merchandise in front of it so that the retailer falsely believes that it doesn't sell, and discontinues the item. In clothing, if red shirts sell more, more red shirts are automatically ordered, and pushing out alternatives, not realiizing thast people bought  red shirts for another reason, like  a terrible alternative, then people stop shopping there, because the selection is terrible!It is a typical garbage in garbage out scenario!

wholy1 Aug 22, 2017 4:59 PM Permalink

LOLRO:  " . . . NEXT recession . . . ".  As a fomer "globe-trotter", I follow Simon regularly.  But . . . au contraire:  welcome to the GreatER DEPRESSION, genesis 2007-09 cuz . . .  it's an [on-going, probably accelerating] P-R-O-C-E-S-S like just about everything else "IN ths world". The "song/'notice" remains the same:  R-E-P-E-N-T and RE-covenant with the Lord accorded thru the Redemption.  For those who can't/won't bug to a different "nation venue", pls consider:  Want to "survive to thrive"? Get out of the "urbs"/"C'ville flusterclucks"/social sewers. Get away from the "coasters", nuke plants, major roadways. Get "hunkered-down", "S-I-M-P-L-I-F-I-E-D" on an inland, RURAL, UNaddressed/UNencumbered portion of ARABLE county dirt? Get GROUPED, GUNNED, GARDENED, PROVISIONED.  The "Blessings from the Beginning" are revealed and therefore accessible to the "gather[ed/ing]-together" Remnant[s].  If ya haven't got that garden producing yet - SHAME ON YOU! (smile).

pynky01 Aug 22, 2017 4:55 PM Permalink

My old daddy RIP ... a very smart guy... told me more than once ..."Son, the next depression (not if but when) will make the Great Depression look like a cake walk and we will have a change in the form of our government.".... I think he read that somewhere... supporting failed anything is against nature...and you don't fuk with mother nature ... unless are willing to face the unintended consequences... but hey ...TPTB didnt have to face them...we did... he also told me ...the stock market was like a crap game... but damn these banker types playing with loaded dice...the jews get rich win or lose ...and the goy gets to pay ... nice job if you can get it ..but you cant unless you kneel at the altar of greed in the synagogue of satan... 

Nobodys Home Aug 22, 2017 4:54 PM Permalink

Sears sold HOUSES in their catalog!
I still have an old SEARS/Marlin .22
I think one of their big mistakes was Kmart.
"Progress occasionally requires the decimation of entire industries, and that’s what’s happening now... In the long-run it’s better for everyone. But shorter-term, there’s going to be a lot of pain."

That sounds almost Marxist.

Storm-Clouds Aug 22, 2017 4:49 PM Permalink

Well the dead don't care....

The dead have noticed a flaw in the juggernaut known as Amazon!

The gig economy delivery persons are inept. Possibly zombie like!

Yup in an effort to reduce delivery expense Amazon has shit the bed!

Yeah but they have cloud sales, video, music, hookers!
(Sorry no hookers the dead are pulling my chains....)

Well the dead have a dragon!

Let us hope he can deliver!!!

Really the dead don't care....

sgorem Aug 22, 2017 4:38 PM Permalink

i give the us government of the last fifty years ALL the kudo's for the shit we're in. the average taxpayer sure as hell didn't conspire to lower their own standard of living to third world status..........

HRH Feant2 (not verified) sgorem Aug 22, 2017 5:45 PM Permalink

Thanks to LBJ and the great society program the US incentivized the birth of bastard children from unmarried mothers. Who woulda thunk that would result in an increase of unmarried mothers having not just one bastard child, but mutiple bastard children, since there were no consequences for birthing bastards?

Not only did the US reward bad behavior but they also created more government departments, like HUD, to build housing for the bastard children and unmarried mothers. And then decided we also needed to give food to the poor chilluns and mammies.

Read an article on BB, today, about some BLM nigger saying this: "Black Lives Matter Activist Unveils List of Demands to White People: ‘Give Up the Home You Own.'"…

In reply to by sgorem

centerline DinduNuffin Aug 22, 2017 4:52 PM Permalink

That is about right I think.  Might have actually topped in the late 80's.  Hard to say because there are so many variables - depends on how things are measured.  What I do know is that ever since then the economy has been goosed.  Bubblenomics.  Death spasms of a system that has rolled over and cannot organically "grow" it's way out of it's ponzi scheme government and financial systems.

In reply to by DinduNuffin