ONLY 2,400 BIG BOX STORES TO CLOSE IN NEXT FEW YEARS

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Posted on 30th January 2013 by Administrator in Economy |Politics |Social Issues

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Nothing like a little reality on a Wednesday afternoon. Below is a list of the worst of the worst retailers in the U.S. Hysterically, there are multiple articles about JC Penney this morning and the surge in their stock price yesterday because their dumbass CEO has announced a major change in strategy. Drum roll please. He is going back to having fake sales. The idiots who call themselves financial analysts immediately expounded upon the brilliance of this move. After losing $1 billion of business in one year, this will surely turn the ship back on course.

So solly. The list below, along with the three other failed retailers – Gamestop, Office Max and Radio Shack will be closing thousands of stores in the near future. Just think of all the benefits this will provide. More ghost malls across America. It will do wonders for the Space Available sign manufacturers. Maybe some new retail concepts can gain a foothold – Soup Kitchens R Us, Used Body Parts Thrift Store, or a cafe catering to senior citizens with your choice of cat or dog food. 

It should really test the accounting fraud skills of mall owners, property developers, and our friendly Wall Street bankers as rental income dries up and loan payments on vacant malls become a little challenging. I’m sure Bernanke can convince the FASB to let the banks convert all commercial loans to balloon payment loans with a 50 year term. Therefore, all will be well. No need for cashflow or tenants. I should work for the government.

There should be some great going out of business sales. I’m looking forward to it.

Retailers That Will Close the Most Stores

by | January 29, 2013 at 1:24 PM | Economy, General, Shopping

(AP Photo/Dave Martin)

By Douglas A. McIntyre, Samuel Weigley, Alexander E.M. Hess and Michael B. Sauter, 24/7 Wall St.

It is the time of year again, when America’s largest retailers release those  critical holiday season figures and disclose their annual sales. A review of  these numbers tells us a great deal about how most of the companies will do in  the upcoming year. And while successful retailers in 2012 may add stores this  year, those that have performed very poorly may have to cut locations during  2013 to improve margins or reverse losses.

For many retailers, the sales situation is so bad that it is not a question  of whether they will cut stores, but when and how many. Most recently, Barnes & Noble Inc. (NYSE:  BKS) decided it had too many stores to maintain profits. Its CEO recently  said he plans to close as many as a third of the company’s locations.

Several of America’s largest retailers have been battered for years. Most  have been undermined by a combination of e-commerce competition, often from  Amazon.com Inc. (NASDAQ:  AMZN) and more successful retailers in the same areas. Borders and Circuit  City are two of the best examples of retailers that were destroyed by larger  bricks-and-mortar competition and consumers transitioning to online shopping.  These large, badly damaged retailers could not possibly keep their stores  open.

RELATED: The Most Hated Companies in America

24/7 Wall St. reviewed the weakest large U.S. retailers and picked those that  likely will not be profitable next year if they keep their current location  counts. 24/7 analyzed the retailers’ store counts, recent financial data, online presences, prospects against direct  competitors and precedents set by other large retailers that have downsized by  shuttering locations. We then forecast how many stores each retailer will have  to close this year to sharply increase its prospects financially, even if some  of those location closings do not occur for several years. These forecasts were  based on drops in same-store sales, drops in revenue, a review of direct  competitors, Internet sales and the size of cuts at retailers  in the same sector, if those were available.

5. Barnes & Noble
> Forecast store closings: 190 to  240, per company comments
> Number of U.S. stores: 689
>  One-year stock performance: 8.95%

The move by customers away from print books toward digital books has hurt  Barnes & Noble Inc. (NYSE:  BKS). Same-store sales during the nine-week holiday season fell by 8.2%  year-over-year. The bookseller has tried to offset the declines in physical book  sales with its Nook e-book reader device, but sales of that device fell 13%  compared to the previous year. The company already has begun cutting down  the number of its stores in the past several years. In a recent interview with  the Wall Street Journal, the head of the retail group at Barnes & Noble said  he expected the company to have just 450 to 500 retail stores in 10 years.

RELATED: The Best- and Worst-Run Cities in America

4. Office Depot
> Forecast store closings: 125 to 150
> Number of U.S. stores: 1,114
> One-year stock  performance: 50.7%

Office Depot Inc.’s (NYSE:  ODP) troubles date back to years of competition against OfficeMax Inc. (NYSE:  OMX) and Staples Inc. (NASDAQ:  SPLS), as well as big-box retailers like Walmart. All three stores were  dealt a blow from reduced business activity during the recession, as well as  increased popularity of online retailers such as Amazon. The company’s North  American division reported an operating loss of $21 million in the third quarter  of 2012. Office Depot plans to relocate or downsize as many as 500 locations and  close at least 20 stores. In the third quarter of 2012, the company closed four  stores in the United States, and same-store sales were down by 4%  year-over-year.

3. J.C. Penney
> Forecast store closings: 300 to 350
> Number of U.S. stores: 1,100
> One-year stock performance: -53.6%

J.C. Penney has gone through a rough stretch recently. In the most recent  quarter, same-store sales fell by 26.1% compared to the year-ago period. Even  Internet sales, which are increasing significantly across the retail sector,  have taken a turn for the worst, falling 37.3% in the third quarter, compared to  the prior year. J.C. Penney sales have taken a turn for the worst since former Apple Inc. (NASDAQ:  AAPL) retail chief Ron Johnson took the helm at the company. Johnson’s plan,  among others, has been to wean customers off of heavy discounting and simply  give customers low prices. However, retail strategists and analysts have argued  that Johnson’s plans have created confusion among customers and has been a  further setback to any potential turnaround.

RELATED: States with the Best and Worst School Systems

2. Sears Holding Corp.
> Forecast store closings: Kmart  175 to 225, Sears 100 to 125
> Number of U.S. stores: 2,118
> One-year stock performance: 8.8%

Both Sears and Kmart have been going down the tubes for a long-time, steadily  losing their middle-income shoppers to retailers such as Wal-Mart Stores Inc.  (NYSE:  WMT) and Target Corp. (NYSE:  TGT). Sears Holdings Corp.’s (NASDAQ:  SHLD) same-store sales have declined for six years. In the most recent year,  same-store sales at the namesake franchise fell by 1.6% and at Kmart by 3.7%,  compared to the year-ago period. The company is already in the process of  downsizing its brick-and-mortar presence. In 2012, Sears announced it was  shutting 172 stores. CEO Lou D’Ambrosio is leaving the company in February, to  be replaced by chairman and hedge-fund manager Edward Lampert. Lampert has  minimal operating experience in retail management.

1. Best Buy
> Forecast store closings: 200 to 250
> Number of U.S. stores:1,056
> One-year stock performance: -36.8%

The holiday season was rough for Best Buy Co. Inc. (NYSE:  BBY). Same-store sales declined by 1.4% year-over-year, with international  stores posting a 6.4% decline while U.S. same-store sales were flat.  Companywide, the electronics retailer reported that holiday revenue had declined  to $12.8 billion from $12.9 billion the year before. In the most recent  completed quarter, during which same-store sales declined 4.3%, the company  reported a loss of $0.04 per share. Best Buy has been plagued by customers “showrooming” — looking at products in the store and then purchasing them online — in recent years. Speculation persists  that former chairman and founder Richard Schulze may buy out the company.

To see the full list, visit 24/7 Wall St.

WHEN THE MALLS COME TUMBLING DOWN

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Posted on 8th January 2013 by Administrator in Economy |Politics |Social Issues

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Excellent article from Jeff Jordan http://jeff.a16z.com/2012/12/21/why-malls-are-getting-mauled/ about the coming day of reckoning for our mall based retail paradigm. These malls will come tumbling down. There are 1,000 large malls in the country and over 200 of them have vacancy rates over 35%. They constitute the ghost malls of America. The thousands of strip malls are in even worse shape, as mom and pop retailers don’t have the staying power of dying behemoths like Sears and JC Penney. The author points to on-line retailing as the reason for the coming demolition of malls across America. He is partly right. The numbers speak for themselves.

In 2007 the total retail sales, excluding auto sales,  in America were $3.09 trillion. In 2012 they will be approximately $3.45 trillion. That is a 12% increase in five years. This is not very good considering government reported inflation was 11% and real inflation for real people was closer to 20%. If you back out gasoline sales, then retail sales only grew by 8.7%. Now we get to the internet retail revolution. Internet retail sales totaled $309 billion in 2007 and will total $435 billion in 2012, a phenomenal 41% increase in five years. If you back that out, then retail sales from bricks and mortar mall based stores only grew by 6% in the last five years. This is an epic fail. We know for a fact that Sears and JC Penney are in death spirals. One or both are the anchors in most of the largest malls in the country. Their eventual bankruptcy will be the final nail in the coffin of mall based retailing. As the price of gasoline continues to rise, internet sales will continue to eat away at bricks and mortar. We are watching a slow motion train wreck in progress.

Jeff Jordan’s charts showing vacancy rates in malls reveals another truth. With vacancy rates this high, real estate developers should be going bankrupt, as their rental income can’t possibly be covering the interest expense on their loans to the Wall Street banks. The Wall Street banks have pretended the loans are being paid and the developers are pretending to pay them. Ben Bernanke and the Fed have instructed the Wall Street banks to not foreclose on these developers for non-payment, waiting for the economy to recover. It hasn’t happened and will not happen. There are hundreds of billions of bad debt sitting on JP Morgan, Cititcorp and the rest of the criminal cabal banks that should be written off today. The imminent demise of Sears and JC Penney will be the reality check as developers go under en masse.

The delusional retail CEOs will never admit the truth until it is too late. These brilliant strategists all use the same game plan. As sales continue to decline, they cut staff and reduce benefits. Have you been in a big box retailer lately? Try finding a worker who knows anything. As the experience of physically visiting a retail store becomes so repugnant that it makes you physically ill, you do more of your purchasing on-line. It’s a slow steady spiral downward for bricks and mortar retailing – except for JC Penny were it is a rapid spiral. Most of the major retail chains have either stopped expansion or slowed it dramatically since 2007. Even with no new stores, sales continue to deteriorate. Middle class America has run out of money. The lack of expansion is about to transition to the closing of thousands of stores in the next few years.

Maybe the government can make lemonaide out of lemons. The 200 or 300 ghost malls can be converted to FEMA holding facilities or massive soup kitchens and homeless shelters after the USD collapses. I always try to find the bright side to a bad situation. :)  

 

Why Malls Are Getting Mauled

Online is clearly taking share from brick and mortar…this is likely to continue
—International Council of Shopping Centers, last week

America has too many malls.

I’ve recently blogged that many traditional brick-and-mortar retailers are being threatened with “economic destruction” by their advantaged online competition.  In an interview with Bloomberg TV, anchorwoman Nicole Lapin asked about the implications of this dynamic on retail real estate.  I said I hadn’t studied it, but I thought the ramifications would be very big and very negative (I believe the phrase “apocalyptic” was used).

I’ve since had the opportunity to spend some time looking at this issue, and I believe we’re seeing clear signs that the e-commerce revolution is seriously impacting commercial real estate.  Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie.  A number of physical retailers have already succumbed to online competition including Circuit City, Borders, CompUSA, Tower Records and Blockbuster, and many others are showing signs of serious economic distress.  These mall and shopping center stalwarts are closing stores by the thousands, and there are few large physical chains opening stores to take their place.  Yet the quantity of commercial real estate targeting retail continues to grow, albeit slowly.  Rapidly declining demand for real estate amid growing supply is a recipe for financial disaster.

There are very few thriving physical retailers these days outside of the daily consumables markets.  I did a quick analysis on the high-level health of the National Retail Federation’s list of the Top 100 retailers in 2012, focusing on merchandise retailers that would likely be located in malls (removing grocery, drug, restaurant and online retailers).  I looked at three measures of retailer health: total sales growth, comp store sales growth and number of stores.

Stores.org Top 100 Retailers

The analysis doesn’t paint a very pretty picture regarding the health of the leading physical retailers in the United States.  Total sales growth is mixed and is negative for 20% of the sample.  Comp store sales growth—arguably the key measure of retailer health—is also mixed and a quarter of the sample is negative.  And note that many of these sales results include the retailers’ online segments, so the picture for their physical stores is even worse.  Lastly, store counts are simply stagnant—about as many top retailers shrank their store count as expanded it, and precious few are expanding aggressively.  The largest retailers in the U.S. do not look very healthy.  And if they’re struggling, it’s likely that their more marginal physical competitors are struggling even more.

I went back to the Top 100 retailers in 2007 to see how that crop had fared five years later and found that four of these top retailers had already gone away through Chapter 11.  Interestingly, the picture of these four doesn’t look that different than the 2012 list.

2007 chart

Source: Stores.org Top 100 Retailers

This declining retailer health is directly impacting malls and shopping centers in the form of very high vacancy rates and sluggish rents—exactly what you’d expect to see where supply exceeds demand.  Both factors deteriorated quickly during the economic crisis of 2008-09, but they’ve shown virtually no improvement since in spite of improved economic conditions.  The recession was the catalyst, but competition from online retailers can only be the continued driver.  The mall business isn’t very healthy either.

Regional Mall Trends

Neighborhood and Community Center Trends

These trends are hitting the market capitalizations of most of the largest owners of retail real estate.  Simon, General Growth, DDR and Kimco between them own over 600 MILLION square feet of U.S. retail real estate, according to nreionline.  Simon’s stock has performed strongly, but the other three stocks have created virtually no value over the past decade.

Stock Performance

Source: Yahoo! Finance

Most real estate professionals understand that profound changes are afoot.  Don Wood, CEO of Federal Realty Investment Trust, says  “there is too much retail supply in this country.”  The Wall Street Journal reports “Green Street Advisor, an analysis firm that tracks REITs, has forecast that 10% of the roughly 1,000 large malls in the U.S. will fail within the next 10 years and be converted into something with far less retail.  That’s a conservative estimate; many mall CEOs predict the attrition rate will be higher”.  And Daniel Hurwitz, president and CEO of DDR, observes, “I don’t think we’re overbuilt, I think we’re under-demolished.”

I agree with the above perspectives, although I believe they likely understate the eventual impact on malls.  A report from Co-Star observes that there are more than 200 malls with over 250,000 square feet that have vacancy rates of 35% or higher, a “clear marker for shopping center distress.”  These malls are becoming ghost towns.  They are not viable now and will only get less so as online continues to steal retail sales from brick-and-mortar stores.  Continued bankruptcies among historic mall anchors will increase the pressure on these marginal malls, as will store closures from retailers working to optimize their business.  Hundreds of malls will soon need to be repurposed or demolished.  Strong malls will stay strong for a while, as retailers are willing to pay for traffic and customers from failed malls seek offline alternatives, but even they stand in the path of the shift of retail spending from offline to online.

This in turn creates further opportunity for online commerce.  If I were thinking of starting a new retail brand right now, I would unquestionably start it online.  And many very talented entrepreneurs are doing just this! I personally shop at Bonobos for pants, J.Hilburn for sweaters, Ledbury for shirts and Warby Parker for eyeglasses.  All of these brands design and source their own goods.  They historically would have started in the mall but they now are starting online, a trend that will undoubtedly continue.  There clearly will be fewer new offline retailers to take the space vacated by the disappearing brick-and-mortar chains, further pressuring malls.

And in an ironic turn, many of these online brands are experimenting with offline stores—but typically with some important twists.  Bonobos and Warby Parker have built showrooms in their New York offices where consumers can come in and try on samples.  But if the consumer wants to purchase items, then the companies fulfill the product from their warehouses—they don’t stock inventory in their “stores”.  Bonobos has expanded this concept into a few additional locations, but not mall locations.  Instead, they are selecting lower cost, non-mall locations and using emails to their online customers to drive folks to these locations.  They do this because a consumer’s purchasing typically expands after a visit to their physical store, and the costs are not high given the lack of inventory and lower rents and staffing costs.  If this trend expands, it will provide further challenges to malls.

In researching this post, I came across a fascinating (and slightly morbid) website called deadmalls.com, a site that chronicles the tales of hundreds of already or soon-to-be dead malls.  Co-founder Brian Florence writes, “I started deadmalls.com with my friend Peter Blackbird in 2000 when we both realized that Pete had mountains of data about dead and dying malls stuck up in his head.  Why keep this information to yourself?  And, realizing the burgeoning power of the Internet and its ability to draw in more information, the site was created to harness stories of woe and merriment from others.  It’s been a great success.”

Unfortunately for mall owners, the content on deadmalls.com is about to expand substantially.  There just are too many malls in America, and this will only get worse.

MERRY CHRISTMAS FROM GEORGE CARLIN

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Posted on 23rd December 2012 by Administrator in Economy |Politics |Social Issues

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ARE YOU SEEING WHAT I’M SEEING?

244 comments

Posted on 17th September 2012 by Administrator in Economy |Politics |Social Issues

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Is it just me, or are the signs of consumer collapse as clear as a Lowes parking lot on a Saturday afternoon? Sometimes I wonder if I’m just seeing the world through my pessimistic lens, skewing my point of view. My daily commute through West Philadelphia is not very enlightening, as the squalor, filth and lack of legal commerce remain consistent from year to year. This community is sustained by taxpayer subsidized low income housing, taxpayer subsidized food stamps, welfare payments, and illegal drug dealing. The dependency attitude, lifestyles of slothfulness and total lack of commerce has remained constant for decades in West Philly. It is on the weekends, cruising around a once thriving suburbia, where you perceive the persistent deterioration and decay of our debt fixated consumer spending based society.

The last two weekends I’ve needed to travel the highways of Montgomery County, PA going to a family party and purchasing a garbage disposal for my sink at my local Lowes store. Montgomery County is the typical white upper middle class suburb, with tracts of McMansions dotting the landscape. The population of 800,000 is spread over a 500 square mile area. Over 81% of the population is white, with the 9% black population confined to the urban enclaves of Norristown and Pottstown.

The median age is 38 and the median household income is $75,000, 50% above the national average. The employers are well diversified with an even distribution between education, health care, manufacturing, retail, professional services, finance and real estate. The median home price is $300,000, also 50% above the national average. The county leans Democrat, with Obama winning 60% of the vote in 2008. The 300,000 households were occupied by college educated white collar professionals. From a strictly demographic standpoint, Montgomery County appears to be a prosperous flourishing community where the residents are living lives of relative affluence. But, if you look closer and connect the dots, you see fissures in this façade of affluence that spread more expansively by the day. The cheap oil based, automobile dependent, mall centric, suburban sprawl, sanctuary of consumerism lifestyle is showing distinct signs of erosion. The clues are there for all to see and portend a bleak future for those mentally trapped in the delusions of a debt dependent suburban oasis of retail outlets, chain restaurants, office parks and enclaves of cookie cutter McMansions. An unsustainable paradigm can’t be sustained.

The first weekend had me driving along Ridge Pike, from Collegeville to Pottstown. Ridge Pike is a meandering two lane road that extends from Philadelphia, winds through Conshohocken, Plymouth Meeting, Norristown, past Ursinus College in Collegeville, to the farthest reaches of Montgomery County, at least 50 miles in length. It served as a main artery prior to the introduction of the interstates and superhighways that now connect the larger cities in eastern PA. Except for morning and evening rush hours, this road is fairly sedate. Like many primary routes in suburbia, the landscape is engulfed by strip malls, gas stations, automobile dealerships, office buildings, fast food joints, once thriving manufacturing facilities sitting vacant and older homes that preceded the proliferation of cookie cutter communities that now dominate what was once farmland.

Telltale Signs

 

 

I should probably be keeping my eyes on the road, but I can’t help but notice the telltale signs of an economic system gone haywire. As you drive along, the number of For Sale signs in front of homes stands out. When you consider how bad the housing market has been, the 40% decline in national home prices since 2007, the 30% of home dwellers underwater on their mortgage, and declining household income, you realize how desperate a home seller must be to try and unload a home in this market. The reality of the number of For Sale signs does not match the rhetoric coming from the NAR, government mouthpieces, CNBC pundits, and other housing recovery shills about record low inventory and home price increases.

The Federal Reserve/Wall Street/U.S. Treasury charade of foreclosure delaying tactics and selling thousands of properties in bulk to their crony capitalist buddies at a discount is designed to misinform the public. My local paper lists foreclosures in the community every Monday morning. In 2009 it would extend for four full pages. Today, it still extends four full pages. The fact that Wall Street bankers have criminally forged mortgage documents, people are living in houses for two years without making mortgage payments, and the Federal Government backing 97% of all mortgages while encouraging 3.5% down financing does not constitute a true housing recovery. Show me the housing recovery in these charts.

Existing home sales are at 1998 levels, with 45 million more people living in the country today.

New single family homes under construction are below levels in 1969, when there were 112 million less people in the country.

Another observation that can be made as you cruise through this suburban mecca of malaise is the overall decay of the infrastructure, appearances and disinterest or inability to maintain properties. The roadways are potholed with fading traffic lines, utility poles leaning and rotting, and signage corroding and antiquated. Houses are missing roof tiles, siding is cracked, gutters astray, porches sagging, windows cracked, a paint brush hasn’t been utilized in decades, and yards are inundated with debris and weeds. Not every house looks this way, but far more than you would think when viewing the overall demographics for Montgomery County. You wonder how many number among the 10 million vacant houses in the country today. The number of dilapidated run down properties paints a picture of the silent, barely perceptible Depression that grips the country today. With such little sense of community in the suburbs, most people don’t even know their neighbors. With the electronic transfer of food stamps, unemployment compensation, and other welfare benefits you would never know that your neighbor is unemployed and hasn’t made the mortgage payment on his house in 30 months. The corporate fascist ruling plutocracy uses their propaganda mouthpieces in the mainstream corporate media and government agency drones to misinform and obscure the truth, but the data and anecdotal observational evidence reveal the true nature of our societal implosion.

A report by the Census Bureau this past week inadvertently reveals data that confirms my observations on the roadways of my suburban existence. Annual household income fell in 2011 for the fourth straight year, to an inflation-adjusted $50,054. The median income — meaning half earned more, half less — now stands 8.9% lower than the all-time peak of $54,932 in 1999. It is far worse than even that dreadful result. Real median household income is lower than it was in 1989. When you understand that real household income hasn’t risen in 23 years, you can connect the dots with the decay and deterioration of properties in suburbia. A vast swath of Americans cannot afford to maintain their residences. If the choice is feeding your kids and keeping the heat on versus repairing the porch, replacing the windows or getting a new roof, the only option is survival.

US GDP vs. Median Household Income

All races have seen their income fall, with educational achievement reflected in the much higher incomes of Whites and Asians. It is interesting to note that after a 45 year War on Poverty the median household income for black families is only up 19% since 1968.

real household income

Now for the really bad news. Any critical thinking person should realize the Federal Government has been systematically under-reporting inflation since the early 1980’s in an effort to obscure the fact they are debasing the currency and methodically destroying the lives of middle class Americans. If inflation was calculated exactly as it was in 1980, the GDP figures would be substantially lower and inflation would be reported 5% higher than it is today. Faking the numbers does not change reality, only the perception of reality. Calculating real median household income with the true level of inflation exposes the true picture for middle class America. Real median household income is lower than it was in 1970, just prior to Nixon closing the gold window and unleashing the full fury of a Federal Reserve able to print fiat currency and politicians to promise the earth, moon and the sun to voters. With incomes not rising over the last four decades is it any wonder many of our 115 million households slowly rot and decay from within like an old diseased oak tree. The slightest gust of wind can lead to disaster.

Eliminating the last remnants of fiscal discipline on bankers and politicians in 1971 accomplished the desired result of enriching the top 0.1% while leaving the bottom 90% in debt and desolation. The Wall Street debt peddlers, Military Industrial arms dealers, and job destroying corporate goliaths have reaped the benefits of financialization (money printing) while shoveling the costs, their gambling losses, trillions of consumer debt, and relentless inflation upon the working tax paying middle class. The creation of the Federal Reserve and implementation of the individual income tax in 1913, along with leaving the gold standard has rewarded the cabal of private banking interests who have captured our economic and political systems with obscene levels of wealth, while senior citizens are left with no interest earnings ($400 billion per year has been absconded from savers and doled out to bankers since 2008 by Ben Bernanke) and the middle class has gone decades seeing their earnings stagnate and their purchasing power fall precipitously.

 

The facts exposed in the chart above didn’t happen by accident. The system has been rigged by those in power to enrich them, while impoverishing the masses. When you gain control over the issuance of currency, issuance of debt, tax system, political system and legal apparatus, you’ve essentially hijacked the country and can funnel all the benefits to yourself and costs to the math challenged, government educated, brainwashed dupes, known as the masses. But there is a problem for the 0.1%. Their sociopathic personalities never allow them to stop plundering and preying upon the sheep. They have left nothing but carcasses of the once proud hard working middle class across the country side. There are only so many Lear jets, estates in the Hamptons, Jaguars, and Rolexes the 0.1% can buy. There are only 152,000 of them. Their sociopathic looting and pillaging of the national wealth has destroyed the host. When 90% of the population can barely subsist, collapse and revolution beckon.

Extend, Pretend & Depend

As I drove further along Ridge Pike we passed the endless monuments to our spiral into the depths of materialism, consumerism, and the illusion that goods purchased on credit represented true wealth. Mile after mile of strip malls, restaurants, gas stations, and office buildings rolled by my window. Anyone who lives in the suburbs knows what I’m talking about. You can’t travel three miles in any direction without passing a Dunkin Donuts, KFC, McDonalds, Subway, 7-11, Dairy Queen, Supercuts, Jiffy Lube or Exxon Station. The proliferation of office parks to accommodate the millions of paper pushers that make our service economy hum has been unprecedented in human history. Never have so many done so little in so many places. Everyone knows what a standard American strip mall consists of – a pizza place, a Chinese takeout, beer store, a tanning, salon, a weight loss center, a nail salon, a Curves, karate studio, Gamestop, Radioshack, Dollar Store, H&R Block, and a debt counseling service. They are a reflection of who we’ve become – an obese drunken species with excessive narcissistic tendencies that prefers to play video games while texting on our iGadgets as our debt financed lifestyles ultimately require professional financial assistance.

What you can’t ignore today is the number of vacant storefronts in these strip malls and the overwhelming number of SPACE AVAILABLE, FOR LEASE, and FOR RENT signs that proliferate in front of these dying testaments to an unsustainable economic system based upon debt fueled consumer spending and infinite growth assumptions. The booming sign manufacturer is surely based in China. The officially reported national vacancy rates of 11% are already at record highs, but anyone with two eyes knows these self-reported numbers are a fraud. Vacancy rates based on my observations are closer to 30%. This is part of the extend and pretend strategy that has been implemented by Ben Bernanke, Tim Geithner, the FASB, and the Wall Street banking cabal. The fraud and false storyline of a commercial real estate recovery is evident to anyone willing to think critically. The incriminating data is provided by the Federal Reserve in their Quarterly Delinquency Report.

The last commercial real estate crisis occurred in 1991. Mall vacancy rates were at levels consistent with today.

The current reported office vacancy rates of 17.5% are only slightly below the 19% levels of 1991.

As reported by the Federal Reserve, delinquency rates on commercial real estate loans in 1991 were 12%, leading to major losses among the banks that made those imprudent loans. Amazingly, after the greatest financial collapse in history, delinquency rates on commercial loans supposedly peaked at 8.8% in the 2nd quarter of 2010 and have now miraculously plummeted to pre-collapse levels of 4.9%. This is while residential loan delinquencies have resumed their upward trajectory, the number of employed Americans has fallen by 414,000 in the last two months, 9 million Americans have left the labor force since 2008, and vacancy rates are at or near all-time highs. This doesn’t pass the smell test. The Federal Reserve, owned and controlled by the Wall Street, instructed these banks to extend all commercial real estate loans, pretend they will be paid, and value them on their books at 100% of the original loan amount. Real estate developers pretend they are collecting rent from non-existent tenants, Wall Street banks pretend they are being paid by the developers, and their highly compensated public accounting firm pretends the loans aren’t really delinquent. Again, the purpose of this scam is to shield the Wall Street bankers from accepting the losses from their reckless behavior. Ben rewards them with risk free income on their deposits, propped up by mark to fantasy accounting, while they reward themselves with billions in bonuses for a job well done. The master plan requires an eventual real recovery that isn’t going to happen. Press releases and fake data do not change the reality on the ground.

I have two strip malls within three miles of my house that opened in 1990. When I moved to the area in 1995, they were 100% occupied and a vital part of the community. The closest center has since lost its Genuardi grocery store, Sears Hardware, Blockbuster, Donatos, Sears Optical, Hollywood Tans, hair salon, pizza pub and a local book store. It is essentially a ghost mall, with two banks, a couple chain restaurants and empty parking spaces. The other strip mall lost its grocery store anchor and sporting goods store. This has happened in an outwardly prosperous community. The reality is the apparent prosperity is a sham. The entire tottering edifice of housing, autos, and retail has been sustained by ever increasing levels of debt for the last thirty years and the American consumer has hit the wall. From 1950 through the early 1980s, when the working middle class saw their standard of living rise, personal consumption expenditures accounted for between 60% and 65% of GDP. Over the last thirty years consumption has relentlessly grown as a percentage of GDP to its current level of 71%, higher than before the 2008 collapse.

If the consumption had been driven by wage increases, then this trend would not have been a problem. But, we already know real median household income is lower than it was in 1970. The thirty years of delusion were financed with debt – peddled, hawked, marketed, and pushed by the drug dealers on Wall Street. The American people got hooked on debt and still have not kicked the habit. The decline in household debt since 2008 is solely due to the Wall Street banks writing off $800 billion of mortgage, credit card, and auto loan debt and transferring the cost to the already drowning American taxpayer.

The powers that be are desperately attempting to keep this unsustainable, dysfunctional debt choked scheme from disintegrating by doling out more subprime auto debt, subprime student loan debt, low down payment mortgages, and good old credit card debt. It won’t work. The consumer is tapped out. Last week’s horrific retail sales report for August confirmed this fact. Declining household income and rising costs for energy, food, clothing, tuition, taxes, health insurance, and the other things needed to survive in the real world, have broken the spirit of Middle America. The protracted implosion of our consumer society has only just begun. There are thousands of retail outlets to be closed, hundreds of thousands of jobs to be eliminated, thousands of malls to be demolished, and billions of loan losses to be incurred by the criminal Wall Street banks.

The Faces of Failure & Futility

My fourteen years working in key positions for big box retailer IKEA has made me particularly observant of the hubris and foolishness of the big chain stores that dominate the retail landscape.  There are 1.1 million retail establishments in the United States, but the top 25 mega-store national chains account for 25% of all the retail sales in the country. The top 100 retailers operate 243,000 stores and account for approximately $1.6 trillion in sales, or 36% of all the retail sales in the country. Their misconceived strategic plans assumed 5% same store growth for eternity, economic growth of 3% per year for eternity, a rising market share, and ignorance of the possible plans of their competitors. They believed they could saturate a market without over cannibalizing their existing stores. Wal-Mart, Target, Best Buy, Home Depot and Lowes have all hit the limits of profitable expansion. Each incremental store in a market results in lower profits.

My trip to my local Lowes last weekend gave me a glimpse into a future of failure and futility. Until 2009, I had four choices of Lowes within 15 miles of my house. There was a store 8 miles east, 12 miles west, 15 miles north, and 15 miles south of my house. In an act of supreme hubris, Lowes opened a store smack in the middle of these four stores, four miles from my house. The Hatfield store opened in early 2009 and I wrote an article detailing how Lowes was about to ruin their profitability in Montgomery County. It just so happens that I meet a couple of my old real estate buddies from IKEA at a local pub every few months. In 2009 one of them had a real estate position with Lowes and we had a spirited discussion about the prospects for the Lowes Hatfield store. He assured me it would be a huge success. I insisted it would be a dud and would crush the profitability of the market by cannibalizing the other four stores. We met at that same pub a few months ago. Lowes had laid him off and he admitted to me the Hatfield store was a disaster.

I pulled into the Lowes parking lot at 11:30 am on a Saturday. Big Box retailers do 50% of their business on the weekend. The busiest time frame is from 11:00 am to 2:00 pm on Saturday. Big box retailers build enough parking spots to handle this peak period. The 120,000 square feet Hatfield Lowes has approximately 1,000 parking spaces. I pulled into the spot closest to the entrance during their supposed peak period. There were about 70 cars in the parking lot, with most probably owned by Lowes workers. It is a pleasure to shop in this store, with wide open aisles, and an employee to customer ratio of four to one. The store has 14 checkout lanes and at peak period on a Saturday, there was ONE checkout lane open, with no lines. This is a corporate profit disaster in the making, but the human tragedy far overrides the declining profits of this mega-retailer.

As you walk around this museum of tools and toilets you notice the looks on the faces of the workers. These aren’t the tattooed, face pierced freaks you find in many retail establishments these days. They are my neighbors. They are the beaten down middle class. They are the middle aged professionals who got cast aside by the mega-corporations in the name of efficiency, outsourcing, right sizing, stock buybacks, and executive stock options. The irony of this situation is lost on those who have gutted the American middle class. When you look into the eyes of these people, you see sadness, confusion and embarrassment. They know they can do more. They want to do more. They know they’ve been screwed, but they aren’t sure who to blame. They were once the very customers propelling Lowes’ growth, buying new kitchens, appliances, and power tools. Now they can’t afford a can of paint on their $10 per hour, no benefit retail careers. As depressing as this portrait appears, it is about to get worse.

This Lowes will be shut down and boarded up within the next two years. The parking lot will become a weed infested eyesore occupied by 14 year old skateboarders. One hundred and fifty already down on their luck neighbors will lose their jobs, the township will have a gaping hole in their tax revenue, and the CEO of Lowes will receive a $50 million bonus for his foresight in announcing the closing of 100 stores that he had opened five years before. This exact scenario will play out across suburbia, as our unsustainable system comes undone. Our future path will parallel the course of the labor participation rate. Just as the 9 million Americans who have “left” the labor force since 2008 did not willfully make that choice, the debt burdened American consumer will be dragged kicking and screaming into the new reality of a dramatically reduced standard of living.

Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing?

A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.

“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges

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EXTEND & PRETEND COMING TO AN END

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Posted on 26th February 2012 by Administrator in Economy |Politics |Social Issues

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The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.

I wrote an article called Extend and Pretend is Wall Street’s Friend about one year ago where I detailed what I saw as the moneyed interest’s master plan to pretend that hundreds of billions in debt would be repaid, despite the fact that declining developer cash flow and plunging real estate prices would make that impossible. Here are a couple pertinent snippets from that article:

“A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history.

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.

If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.”

Master Plan Malfunction

You have to admire the resourcefulness of the vested interests in disguising disaster and pretending that time will alleviate the consequences of their insatiable greed, blatant criminality and foolish risk taking. Extending bad loans and pretending they will be repaid does not create the cash flow necessary to actually pay the interest and principal on the debt. The chart below reveals the truth of what happened between 2005 and 2008 in the commercial real estate market. There was an epic feeding frenzy of overbuilding shopping centers, malls, office space, industrial space and apartments. During the sane 1980’s and 1990’s, commercial real estate loan issuance stayed consistently in the $500 billion to $700 billion range. The internet boom led to a surge to $1.1 trillion in 2000, with the resultant pullback to $900 billion by 2004. But thanks to easy Al and helicopter Ben, the bubble was re-inflated with easy money and zero regulatory oversight. Commercial real estate loan issuance skyrocketed to $1.6 trillion per year by 2008. Bankers sure have a knack for doing the exact opposite of what they should be doing at the exact wrong time. They doled out a couple trillion of loans to delusional developers at peak prices just prior to a historic financial cataclysm.

The difference between bad retail mortgage loans and bad commercial loans is about 25 years. Commercial real estate loans usually have five to seven year maturities. This meant that an avalanche of loans began maturing in 2010 and will not peak until 2013. With $1.2 trillion of loans coming due between 2010 and 2013, disaster for the Wall Street Too Big To Fail banks awaited if the properties were valued honestly. A perfect storm of declining property values and plunging cash flows for developers should have resulted in enormous losses for Wall Street banks and their shareholders, resulting in executives losing not only their obscene bonuses but even their jobs. Imagine the horror for the .01%.

The fact is that commercial property prices are currently 42% below the 2007 – 2008 peak. The slight increase in the national index is solely due to strong demand for apartments, as millions of Americans have been kicked out of their homes by Wall Street bankers using fraudulent loan documentation to foreclose on them. The national index has recently resumed its fall. Industrial and retail properties are leading the descent in prices according to Moodys. The master plan of extend and pretend was implemented in 2009 and three years later commercial real estate prices are 10% lower, after the official end of the recession.

Part one of the “extend and pretend” plan has failed. Part two anticipated escalating developer cash flows as the economy recuperated, Americans resumed spending like drunken sailors and retailers began to rake in profits at record levels again. Reality has interfered with their desperate last ditch gamble. Office vacancies remain at 17.3%, close to 20 year highs, as 12.3 million square feet of new space came to market in 2011. Vacancies are higher today than they were at the end of the recession in December 2009. The recovery in cash flow has failed to materialize for commercial developers. Strip mall vacancies at 11% remain stuck at 20 year highs. Regional mall vacancies at 9.2% linger near all-time highs. Vacancies remain elevated, with no sign of decreasing. Despite these figures, an additional 4.9 million square feet of new retail space was opened in 2011. The folly of this continued expansion will be revealed as bricks and mortar retailers are forced to close thousands of stores in the next five years.

It is clear the plan put into place three years ago has failed. Extending and pretending doesn’t service the debt. Only cash flow can service debt.

Now What?

Extending and pretending that hundreds of millions in commercial loans were payable for the last three years is now colliding with a myriad of other factors to create a perfect storm in 2012 and 2013. The extension of maturities has now set up a far more catastrophic scenario as described by Chris Macke, senior real estate strategist at CoStar Group:

“As banks and property owners continue to partake in loan extensions amid a softening economy, commercial banks continue to “delay and pray” that property values will rise. Many loans are piled up and concentrated in this year, and at the same time, the economy is slowing. This dilemma has resulted in the widening of what is commonly termed the “loan maturity cliff,” which is attributed to the so called extend-and-pretend loans. During the market downturn, lenders extended the maturity dates of loans with properties that had current values below their balances. Instead, however the practice has resulted in a race for property values to try to catch up with the loan maturity dates.”

The Federal Reserve, Wall Street banks, Mortgage Bankers Association and the rest of the confederates of collusion will continue the Big Lie for as long as possible. They point to declining commercial default rates as proof of improvement. The chart below details the 4th quarter default rates for real estate loans over the last six years. Default rates in the 4th quarter of 2009 peaked for all real estate loan types. Still, today’s default rate is 450% higher than the rate in 2006. A critical thinker might ask how commercial default rates could fall from 8.75% to 6.12% when commercial vacancies have increased and commercial property values have fallen. It’s amazing how low default rates can fall when a bank doesn’t require payments or collateral to back up the loan and can utilize accounting gimmicks to avoid write-offs.

 

Real estate loans

All

Booked in domestic offices

Residential 

Commercial 

Farmland

2011:4

8.22

9.86

6.12

3.26

2010:4

9.07

10.11

7.98

3.61

2009:4

9.55

10.45

8.75

3.43

2008:4

6.03

6.64

5.49

2.28

2007:4

2.90

3.07

2.75

1.51

2006:4

1.70

1.95

1.32

1.41

The reality as detailed by honest analysts is much different than the numbers presented by Ben Bernanke and his banker cronies. A recent article from the Urban Land Institute provides some insight into the current state of the market:

 Ann Hambly, who previously ran the commercial servicing departments at Prudential, Bank of New York, Nomura, and Bank of America said a wave of defaults is coming in commercial mortgage–backed securities (CMBS). And Carl Steck, a principal in MountainSeed Appraisal Management, an Atlanta-based firm that deals in the commercial real estate space, said property values are still falling.

Noting that CMBS investors booked $6 billion in real losses in 2011 and have already taken on $2 billion more in losses so far this year, Hambly told reporters in a private briefing that “it’s going to take a miracle” for many borrowers to refinance their deals when they come due between now and 2017.

Carl Steck said that lenders who are taking over the portfolios of failed institutions are finding that the values of the loans “are coming in a lot lower than they ever thought they would.” And as a result, he thinks a “fire sale” of commercial loans is just over the horizon.

Analysts expect 2012 to be a record-setting year for commercial real estate defaults. Last week delinquencies for office and retail loans hit their highest-ever levels, according to Fitch Ratings. The value of all delinquent commercial loans is now $57.7 billion, according to Trepp, LLC. If you think the criminal Wall Street banks limited their robo-signing fraud to just poor homeowners, you would be mistaken. The fraud uncovered in the commercial lending orbit will dwarf the residential swindle. Research by Harbinger Analytics Group shows the widespread use of inaccurate, fraudulent documents for land title underwriting of commercial real estate financing. According to the report:

This fraud is accomplished through inaccurate and incomplete filings of statutorily required records (commercial land title surveys detailing physical boundaries, encumbrances, encroachments, etc.) on commercial properties in California, many other western states and possibly throughout most of the United States. In the cases studied by Harbinger, the problems are because banks accepted the work of land surveyors who “have committed actual and/or constructive fraud by knowingly failing to conduct accurate boundary surveys and/or failing to file the statutorily required documentation in public records.”




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The Wall Street geniuses bundled commercial real estate mortgages and re-sold them as securities around the world. The suckers holding those securities, already staggering from the overabundance of empty office space, will be devastated if it turns out they have no claim to the properties. They will rightly sue the lenders for falsely representing the properties. Mortgage holders in these cases may also turn to their title insurance to cover any losses. It is unknown if the title insurance companies have the wherewithal to withstand enormous claims on costly commercial properties. It looks like that light at the end of the tunnel is bullet train headed our way.

One of the fingers in the dyke of the “extend and pretend” dam has been removed by the FASB. The new leak threatens to turn into a gusher.

 

Andy Miller, cofounder of Miller Frishman Group, and one of the few analysts who saw the real estate crash coming two years before it surprised Bernanke and the CNBC cheerleaders sees a flood of defaults on the horizon. In a recent interview with The Casey Report Miller details a dramatic turn for the worse in the commercial real estate market he has witnessed in the last few months. His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the “extend and pretend” plan was implemented by the governing powers. The distressed market dried up completely until November 2011. Miller describes what happened next:

“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we’re now seeing some really big-ticket properties with major loans on them that have gone into distress, and they’re all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, “Let’s do a two- or three-year workout with these guys. I’m sure by 2012 this market is going to get a lot better.” Well, 2012 is here now, and guess what? It’s not any better. In fact I would argue that it’s still deteriorating.”

Why the sudden surge in distressed properties coming to market in late 2011? It seems the FASB finally decided to grow a pair of balls after being neutered by Bernanke and Geithner in 2009 regarding mark to market accounting. They issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011called Clarifications to Accounting for Troubled Debt Restructurings by Creditors. Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market. Andy Miller understands this is the beginning of the end for “extend and pretend”:

“I believe it’s a huge deal because it means you don’t have carte blanche anymore to kick the can down the road. After all, kicking the can down the road was a way to avoid taking a big hit to your capital. Well, you can’t do that anymore. It forces you to cut through the optical illusions by writing this asset to its fair market value.”

Ben Bernanke and the Wall Street banks are running out tricks in their bag of deception. Wall Street banks created billions in profits by using accounting entries to reduce their loan loss reserves. They’ve delayed mortgage foreclosures for two years to avoid taking the losses on their loan portfolios. They’ve pretended their commercial loan portfolios aren’t worth 50% less than their current carrying value. Bernanke has stuffed his Federal Reserve balance sheet with billions in worthless commercial mortgage backed securities. The Illusion of Recovery is being revealed as nothing more than a two bit magician’s trick. In the end it always comes back to cash flow. The debt cannot be serviced and must be written off. Thinking the American consumer will ride to the rescue is a delusional flight of the imagination.

Apocalypse Now – The Future of Retailers & Mall Owners

 

When I moved to my suburban community in 1995 there were two thriving shopping centers within three miles of my home and a dozen within a ten mile radius. Seventeen years later the population has increased dramatically in this area, and these two shopping centers are in their final death throes. The shopping center closest to my house has a vacant Genuardi grocery store(local chain bought out and destroyed by Safeway), vacant Blockbuster, vacant Sears Hardware, vacant Donatos restaurant, vacant book store, and soon to be vacant Pizza Pub. It’s now anchored by a near bankrupt Rite Aid and a Dollar store. This ghost-like strip mall is in the midst of a fairly thriving community. Anyone with their eyes open as they drive around today would think Space Available is the hot new retailer. According to the ICSC there are 105,000 shopping centers in the U.S., occupying 7.3 billion square feet of space. Total retail square feet in the U.S. tops 14.2 billion, or 46 square feet for every man, woman and child in the country. There are more than 1.1 million retail establishments competing for every discretionary dollar from consumers.

Any retailer, banker, politician, or consumer who thinks we will be heading back to the retail glory days of 2007 is delusional. Retail sales reached a peak of $375 billion per month in mid 2008. Today, retail sales have reached a new “nominal” peak of $400 billion per month. Even using the highly questionable BLS inflation figures, real retail sales are still below the 2008 peak. Using the inflation rate provided by John Williams at Shadowstats, as measured the way it was in 1980, real retail sales are 15% below the 2008 peak. The unvarnished truth is revealed in the declining profitability of major retailers and the bankruptcies and store closings plaguing the industry. National retail statistics and recent retailer earnings reports paint a bleak picture, and it’s about to get bleaker.

Retail sales in 1992 totaled $2.0 trillion. By 2011 they had grown to $4.7 trillion, a 135% increase in nineteen years. A full 64% of this rise is solely due to inflation, as measured by the BLS. In reality, using the true inflation figures, the entire increase can be attributed to inflation. Over this time span the U.S. population has grown from 255 million to 313 million, a 23% increase. Median household income has grown by a mere 8% over this same time frame. The increase in retail sales was completely reliant upon the American consumers willing to become a debt slaves to the Wall Street bank slave masters. It is obvious we have learned to love our slavery. Credit card debt grew from $265 billion in 1992 to a peak of $972 billion in September of 2008, when the financial system collapsed. The 267% increase in debt allowed Americans to live far above their means and enriched the Wall Street banking cabal. The decline to the current level of $800 billion was exclusively due to write-offs by the banks, fully funded by the American taxpayer.

Credit cards are currently being used far less as a way to live beyond your means, and more to survive another day. This can be seen in the details underlying the monthly retail sales figures. On a real basis, with inflation on the things we need to live like energy, food and clothing rising at a 10% clip, retail sales are declining. Gasoline, food and medicine are the drivers of retail today. The surge in automobile sales is just another part of the “extend and pretend” plan, as Bernanke provides free money to banks and finance companies so they can make seven year 0% interest loans to subprime borrowers. Easy credit extended to deadbeats will not create the cash flow needed to repay the debt. The continued penetration of on-line retailers does not bode well for the dying bricks and mortar zombie retailers like Sears, JC Penny, Macys and hundreds of other dead retailers walking. With gas prices soaring, the economy headed back into recession and the Federal Reserve out of ammunition, Andy Miller sums up the situation nicely:

“Well, I think we’re headed into an economy right now where there’s just not a lot of upside. Do we think, for example, in the shopping center business, that retail and consumer spending is going to go way up? Certainly not. I think that as times get tougher and unemployment remains high, it’s going to have a negative impact on consumer spending. In almost in any city in America right now, it doesn’t take a genius to see how much retail space has been constructed and is sitting there empty. Vacancy rates are as high as I’ve seen them in almost every venue that I visit. I’m very concerned about the retail business, and I think it’s extremely dangerous right now.”

The major big box retailers have been reporting their annual results in the last week. The results have been weak and even those whose results are being spun as positive by the mainstream media are performing dreadfully compared to 2007. A few examples are in order:

  • Home Depot was praised for their fantastic 2011 result of $70 billion in sales and $6.7 billion of income. The MSM failed to mention that sales are $7 billion lower than 2007, despite having 18 more stores and profit exceeded $7.2 billion in 2007. Sales per square foot have declined from $335 to $296, a 12% decline in four years.
  • Target made $2.9 billion on revenue of $67 billion in 2011. $953 million of this profit was generated from their credit card this year versus $744 million last year because they reduced their loan loss reserve by $260 million. Target is supposedly a retailer, but 33% of their bottom line comes from a credit card they desperately tried to sell in 2009. They have increased their store count from 1,600 to 1,800 since 2007 and their profit is flat. Sales per square foot have declined from $307 to $280 since 2007.
  • J.C. Penney is a bug in search of a windshield. Their sales have declined from $20 billion in 2007 to $17 billion in 2011 despite increasing their store count from 1,067 to 1,114. Their profits have plunged from $1.1 billion to a loss of $152 million. Their sales per square foot have plunged by 14% since 2007. Turning to a former Apple marketing guru as their new CEO will fail. Everyday low pricing is not going to work on Americans trained like monkeys to salivate at the word SALE.
  • The death spiral of Sears/Kmart is a sight to see. As the anchor in hundreds of dying malls across the land, this retail artifact will be joining Montgomery Ward on the scrap heap of retail history in the next few years. Its eventual bankruptcy and liquidation will leave over 4,000 rotting carcasses to spoil our landscape. The one-time genius and heir to the Warren Buffett mantle – Eddie Lampert – has proven to be as talented at retailing as his buddy Jim Cramer is at picking stocks. He has managed to decrease sales by $10 billion, from $53 billion to $43 billion in the space of four years despite opening 247 new stores. That is not an easy feat to accomplish. At least he was able to reduce profits from $1.5 billion to $133 million and drive the sales per square foot in his stores down by 15%.
  • Widely admired Best Buy has screwed the pooch along with the other foolish retailers that have massively over expanded in the last decade. They have increased their domestic sales from $31 billion to $37 billion, a 19% increase in four years. This increase only required a 444 store expansion, from 873 stores to 1,317 stores. A 51% increase in store count for a 19% increase in sales seems to be a bad trade-off. Their chief competitor – Circuit City – went belly-up during this time frame, making the relative sales increase even more pathetic. The $6 billion increase in sales resulted in a $100 million decline in profits and a 13% decrease in sales per square foot since 2007. It might behoove the geniuses running this company to stop building new stores.
  • The retailer that committed the greatest act of suicide in the last decade is Lowes. Their act of hubris, as Home Depot struggled in the mid 2000’s, is coming home to roost today. They increased their store count from 1,385 to 1,749 over four years. This 26% increase in store count resulted in an increase in sales from $47 billion to $49 billion, a 4% boost. Profitability has plunged from over $3 billion to under $2 billion over this same time frame. They’ve won the efficiency competition by seeing their sales per square feet fall by an astounding 21% over the last four years. I’ve witnessed their ineptitude as they opened four stores within 10 miles of each other in Montgomery County, PA and cannibalized themselves to death. The newest store, three miles from my house, is a pleasure to shop as there is generally more staff than customers even on a Saturday afternoon. This beautiful new store will be vacant rotting hulk within three years.

Do the results of these retail giants jive with the retail recovery stories being spun by the corporate mainstream media? When you see some stock shill on CNBC touting one of these retailers, realize he is blowing smoke up your ass. These six struggling retailers account for over 1.1 billion square feet of retail space in the U.S. One or more of them anchor every mall in America. Wal-Mart (600 million square feet in the U.S.) and Kohl’s (82 million square feet) continue to struggle as their lower middle class customers can barely make ends meet. The perfect storm is developing and very few people see it coming. Extend and pretend has failed. Americans are tapped out. Home prices continue to fall. Energy and food prices continue to rise. Wages are stagnant. Job growth is weak. Middle and lower class Americans are using credit cards just to pay their basic living expenses. The 99% are not about to go on a spending binge.

As consumers reduce consumption, retailers lose profits and will be forced to close stores. It is likely that at least 150,000 retail stores will need to close in the next five years. Less stores means less rent for mall developers. Less rent means the inability to service their debt as the value of their property declines with the outcome of Ghost Malls haunting your community. Maybe good old American ingenuity will come to the rescue as we convert ghost malls into FEMA prison camps for uncharged Ron Paul supporters, Obamacare death panel implementation centers, TSA groping educational facilities, housing for the millions kicked out of their homes by the Wall Street .01%ers, and bomb shelters for the imminent Iranian invasion.

Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.



 



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