There is a self perpetuating cycle going on. Consumers are tapped out. Retailers massively overbuilt based upon a continuation of debt accumulation and using you home equity as an ATM. Developers built too many malls with too much debt. Banks made loans they shouldn’t have made to developers, retailers and consumers. It was all good, until it wasn’t. Now the cycle is coming around. Consumers have reduced spending on discretionary crap because they prefer to eat, drive their cars and heat their homes. Retailers are losing money, filing bankruptcy, and closing stores. Mall developers aren’t getting enough rent to make their loan payments to the bankers. The bankers have pretended the loans are good for the last two years, waiting for a recovery. It ain’t coming. I read a special report last night from Casey Research that said the dam is cracking. The bankers are now pulling the plug on the developers. Loan losses and Ghost Malls are here.
It has only just begun. The list of retailers FORCED to close stores will grow as 2012 progresses. Sears will not get away with closing just 120 stores. They will need to close 500 stores to survive. Best Buy doesn’t know it yet, but they will need to close hundreds of stores. Lowes has royally fucked up their expansion. They will need to close hundreds of stores. The strip malls already have more vacant stores than functioning stores. The great consumer deleveraging is in the 3rd inning. This will not be a fun ballgame for bankers, retailers or developers.
5 retailers shuttering stores
These chains are battling to avoid the fate of Borders, Circuit City and other well-known retailers that went bust.
By Tom Van Riper, Forbes.com
As retailers crawl out of the worst recession in decades, many realize that they overbuilt and have too many stores. Declining sales have forced several chains to pare down their number of outlets and, in some cases, file for bankruptcy.
U.S. chains announced roughly 3,000 store closings in 2011, down from the 5,000-plus announced in 2010, according to Retail Traffic, a trade publication that tracks retail real-estate trends. One result is that the nation’s malls and shopping centers are reporting near-record vacancy rates as anchor tenants retrench.
Sears (SHLD), the nation’s biggest seller of household appliances, is struggling. Department store chains like Macy’s (M) and J.C. Penney (JCP) are treading water, while apparel retailers like Gap (GPS) and Talbots (TLB) have fallen victim to changing fashion preferences.
And while the job market is improving and consumer credit is easier to get, a renewed spike in store closings can’t be ruled out in 2012, according to Retail Traffic. Especially vulnerable are consumer electronics chains, which are under intense price pressure from Wal-Mart Stores (WMT) and don’t have many hot new products coming to market. Meantime, store openings will likely come from discounters like Family Dollar Stores (FDO), Dollar Tree (DLTR) and Wal-Mart.
“The extreme-value guys” are where the growth is, says Howard Davidowitz, chairman of retail consultant Davidowitz & Associates.
So which chains are shutting down the most locations?
Why Best Buy is destined to fail
Disappointing earnings and a falling stock price show the big-box retailer is in serious trouble. Here are some of the reasons.
Consider a few key metrics. Despite the disappearance of competitors including Circuit City, the company is losing market share. Its last earnings announcement disappointed investors. In 2011, the company’s stock has lost 40% of its value. The forward price-to-earnings ratio is a mere 6.23 (industry average is 10.20). Its market cap down to less than $9 billion. Its average analyst rating, according to The Street.com, is a B-.
Those are just some of the numbers, and they don’t look good. They bear out a prediction in March from The Wall Street Journal’s “Heard on the Street” column that “the worst is yet to come” for Best Buy investors. With the flop of 3-D televisions and the expansion of Apple (AAPL -1.27%, news)own retail locations, there was no killer product on the horizon that would lift Best Buy from the doldrums. Though the company accounts for almost a third of all U.S. consumer electronics purchases, analysts noted, it remains a ripe target for more nimble competitors.
But the numbers only scratch the surface. To discover the real reasons behind the company’s decline, take this simple test. Walk into one of the company’s retail locations or shop online. And try, really try, not to lose your temper.
I admit. I can’t do it. A few days ago, I visited a Best Buy store in Pinole, Calif., with a friend. He’s a devoted consumer electronics and media shopper, and he wanted to buy the 3-D Blu-ray of “How to Train Your Dragon,” which Best Buy sells exclusively. According to the company’s website, it’s back-ordered but available for pickup at the store we visited. The item wasn’t there, however, and the sales staff had no information.
- Related: MSN Money columnist Michael Brush asks, “What’s the problem at Best Buy?“
But my friend decided to buy some other Blu-ray discs. Or at least he tried to, until we were “assisted” by a young, poorly groomed salesclerk from the TV department, who wandered over to interrogate us. What kind of TV do you have? Do you have a cable service, or a satellite service? Do you have a triple-play service plan?
He was clearly — and clumsily — trying to sell some alternative. My friend politely but firmly told him he was not interested in switching his service. I tried to change the subject by asking if there was a separate bin for 3-D Blu-rays; he didn’t know.
The used-car style questions continued. “I have just one last question for you,” he finally said to my friend. “How much do you pay Comcast every month?”
My friend is too polite. “How is that any of your business?” I asked him. “All right then,” he said, the fake smile unaffected, “You folks have a nice day.” He slinked back to his pit.
As a sometime business-school professor, I could just imagine the conversation with the TV department manager the day before. “Corporate says we have to work on what’s called up-selling and cross-selling,” the clerk was informed in lieu of actual training on either the products or effective sales. “Whenever you aren’t with a customer, you need to be roaming the floor pushing our deal with CinemaNow. At the end of the day, I want to know how many people you’ve approached.”
But this is hardly customer service. It actually gets in the way of a customer who’s trying to self-serve because there’s no one around who can answer a basic question about the store’s confusing layout. It’s anti-service.