That headline from Bloomberg sounds suspiciously like the line from the Brendan Fraser flick The Mummy, “Death is only the beginning.”
As an example, CNN reported that Toys ‘R’ Us declared bankrupty. While Toys ‘R’ US will keep their stores open for the Holiday season, they will likely be forced to shutter underperforming stores next year.
According to Bloomberg, In the U.S., more than 3,000 stores did open in the first three quarters of this year. But almost 6,800 closed. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.
Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.
Yes, this map looks very much like a map of the “subprime” residential mortgage crisis.
Let’s focus on Pittsburgh as an example. Watchlisted Commercial Real Estate Loans in the Pittsburgh, PA are include all property types. not just retail. So it is more than just the Amazon effect (on-line retail) causing the closure of retail space. In short, US commercial real estate developers built too much inventory.
One of the causes of CRE overbuilding? The Fed’s zero interest rate policy!
Yes, it is a retail inferno.