Retail Giants Laying Off Just to Stay Open
American shopping malls, which were once the stalwarts of the U.S. retail industry, are in serious decline with giants like Sears, J.C. Penny, and Macy’s Inc. all announcing major layoffs in 2017 to stay solvent. But even that is doubtful. U.S. unemployment may be at 4.7% and consumer confidence at 16-year highs, but if you look at the U.S. retail data, the so-called economic recovery is in serious jeopardy. This could lead to a major jobs crisis and cobble Wall Street’s retail giants.
The bull-market may have just celebrated its eighth anniversary in March 2017, but for the most part, the benefits have trickled up to the top one percent. Most Americans do not even realize we are in an economic recovery.
Since the recovery began in 2009, most of the jobs that have been created are low-paying, part-time jobs in the retail and service industries. Wages are stagnant, inflation is rising, and household debt is soaring.
This is a recipe for disaster in the U.S., where more than 70% of gross domestic product (GDP) growth comes from consumer spending.
And we’re beginning to see how this is playing out in the U.S. retail industry. Over the last number of months, major shopping mall stores like American Apparel, Aéropostale, BCBG Max Azria Group, and Pacific Sun sought bankruptcy protection.
American Eagle, Chicos, Finish Line, Men’s Wearhouse, Office Depot, and The Children’s Place are in the midst of multi-year plans that will see hundreds of stores close.
Right now, there are currently 19 U.S. retailers on the brink of bankruptcy, including Claire’s, rue21, Payless, Nine West, Gymboree, True Religion, and David’s Bridal. If they all go under, 13,216 stores will close. And with it, tens of thousands of jobs lost.1
One Third of U.S. Malls to Close
This can’t come as a surprise. Over the last couple of years, retail industry juggernauts like Kohl’s, Macy’s Walmart, and Sears have announced the closing of hundreds of stores in an effort to just stay afloat. Closing stores might be a painful necessity to stay profitable, but it comes at a cost. J.C. Penny said it is closing up to 140 stores2 that will put 6,000 people out of work while Macy’s is looking to close 100 stores3 and Radio Shack is looking to purge 36% (552) of its stores.4
Meanwhile, Sears just warned investors there is “substantial doubt” that it will be able to stay in business.5 In fiscal 2016, Sears lost $2.2 billion and hasn’t had a profitable year since 2010. It has $13.2 billion in liabilities. If Sears shuts it doors, tens of thousands of people will be out of work; this will lead to hundreds of thousands of lost collateral jobs.
Retail icons like Sears and Macy’s once anchored U.S. malls. But they are being challenged by online shopping sites like Amazon. When shopping mall anchors like Sears and Macy’s are in trouble, the whole industry suffers.
Case in point, Montgomery Ward declared bankruptcy in 2000, closing its remaining 250 stores, after which approximately 33% of the shopping malls where it operated closed.6 It could get a lot worse if Sears and Macy’s are forced to shut their doors.
It is expected that more than one-third (400 of 1,100 enclosed malls) of the shopping malls in the U.S. will close in the coming years. Credit Suisse identified at least 184 shopping malls in the U.S. as being at risk of closing. Sears anchors 110 of these locations.
U.S. Retailers in Crisis
Despite cheers of Dow 21,000, the effects of the 2008 financial crisis are still being felt across the U.S. If the U.S. economy is doing as well as the White House and the stock market say, one has to wonder why so many major retailers are going out of business. Company layoffs might be necessary to keep some businesses lean, but with a lack of fresh jobs to replace those low-paying jobs, more and more Americans are going to be out of work and unemployment rates are going to rise.
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- “These 19 retailers are on the brink of bankruptcy…13,216 stores to close?,” thomasbradshaw.com, March 2, 2017; http://www.thomasdishaw.com/19-retailers-brink-bankruptcy-13216-stores-close/.
- “JCPenney to close up to 140 stores,” CNN, February 24, 2017; http://money.cnn.com/2017/02/24/news/companies/jcpenney-closing-stores/.
- “Macy’s is closing 68 stores — here’s where they will shut down,” Business Insider, January 4, 2017; http://www.businessinsider.com/list-of-macys-stores-closing-2017-1.
- “RadioShack is closing 552 stores — see if your store is one of them,” Business Insider, March 17, 2017; http://www.businessinsider.com/list-of-radioshack-stores-closing-2017-3.
- “Sears Admits It Has ‘Substantial Doubt’ About Its Ability To Survive,” Forbes, March 22, 2017; https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/laurengensler/2017/03/22/sears-substantial-doubt-future/&refURL=https://www.google.ca/&referrer=https://www.google.ca/.
- “Sears could kill hundreds of American shopping malls,” Business Insider September 29, 2016; http://www.businessinsider.com/sears-demise-could-shut-down-another-200-shopping-malls-2016-9.
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