Retail Industry Woes to Continue in 2018 as Bankruptcies, Store Closures, and Layoffs Expected to Rise

Retail Industry Woes
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Amazon.com, Inc. (NASDAQ:AMZN), the e-commerce company, has grown rapidly in the past few years, with its various businesses each having their own value. Its total business is around $995.0 billion, with retail at $600.0 billion, “Amazon Web Services” at $270.0 billion, “Amazon Prime” subscriptions at $70.0 billion, and the advertising section at $55.0 billion. By the end of 2018, Amazon could reach $1.0 trillion in market cap and its many high-margin business operations could push its stock to $2,000 per share.

Amazon’s physical impact can be seen on other retailers as they failed to adapt to the fast-changing technology market, where consumers can easily buy things and compare prices online. Dubbed the “Amazon effect,” this will likely continue to spread woe in the retail industry in 2018.

Increasing Debt on Retailers Can Lead to More Bankruptcies in 2018

2017 was tough for the retail sector and things are expected to get worse in 2018. Retail chains are on the verge of sinking under the weight of debt because of buyouts when the retail business was in a boom. Lots of store bankruptcy announcements came in 2017:

  • J C Penney Company Inc (NYSE:JCP) closed 138 stores.
  • Macy’s Inc (NYSE:M) closed over 100 stores.
  • RadioShack Corp closed 1,470 stores.
  • Family Dollar Stores, Inc. closed 14 Metro Detroit stores.
  • Payless ShoeSource closed 400 stores.
  • MC Sports has announced to get out the business.
  • The Gymboree Corp will close 350 stores.
  • rue21, Inc. closed 400 stores.
  • bebe stores, inc. (OTCMKTS:BEBE) closed all 168 stores.
  • Sports Authority Inc will be closing all its 450 stores.
  • Ann Taylor, Dress Barn, Loft, and Lane Bryant will be closing their stores too.
  • Vanity, a cloth retailer, has filed for bankruptcy, closing its 140 stores.
  • Toys “R” Us, Inc. has also filed for bankruptcy.

Moreover, 2018 will show more closures:

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  • Sears Holdings Corp (NASDAQ:SHLD) and Kmart closing 63 stores
  • Bon-Ton Stores Inc to close 40 stores
  • J. Crew Group Inc closing 50 stores
  • Gap Inc (NYSE:GPS) and Banana Republic closing 200 stores
  • Teavana Holdings Inc to close 379 stores
  • Michael Kors Holdings Ltd (NYSE:KORS) closing 100 to 125 stores
  • Ascena Retail Group Inc (NASDAQ:ASNA) closing at least 268 stores
  • Macy’s will be closing 30 more stores in “the next few years”

Number of Retail Stores Closing Expected to Grow in 2018, Layoffs to Follow

The retail sector is no longer in demand, especially as interest rates rise and consumers turn to alternative retail channels like Amazon. This year, altogether $100.0 million’s worth of retail borrowing came due. According to Fitch Rating Inc., it will increase to $1.9 billion in 2018. And from 2019 to 2025, the annual average will be almost $5.0 billion. The amount of retail debt is also rising, which is very risky. Some retail subsectors are suffering more compared to others. Apparel stores show a tremendous fall, shuttering more than 2,500 stores. Electronics and home entertainment also have contracted significantly, closing more than 1,900 stores this year.

As retailers are going down, so are retail jobs. Many retailers will not be able to refinance, resulting in more bankruptcies and layoffs in 2018. Retail stores closing has hit the retail employment very hard. Heavy borrowing, followed by refinancing and repayment targets can make it difficult for physical store retailers to compete with the online rivals that are being increasingly favored by consumers these days. Job positions at physical stores have grown less in both numbers and wages over the last 10 years, and the risk will continue in the future.

These days, online shopping is a favorite among customers. It saves time and money as you get huge discounts when you shop online. Though this is a boon for common people, it’s becoming a curse for the retail industry. 2017 was very disappointing for the retail industry and these woes are likely going to continue for 2018 and the coming years too.

 

Sources

Amazon could be worth $1 trillion in 2018,” RetailDive, November 15, 2017.

The Amazon Effect: How Retailers Are Impacted,” PYMNTS.com, July 26, 2017.

The Amazon Effect On The U.S. Economy,” Investopedia, August 18, 2017.

2018 Will Be Significantly Worse For Debt-Laden U.S. Retailers,” Forbes, November 10, 2017.

5 retailers at risk of going bankrupt in 2018,” ClickOnDetroit, October 16, 2017.

America’s ‘Retail Apocalypse’ Is Really Just Beginning,” Bloomberg, November 8, 2017.

These major retailers are closing 1,000 stores in 2018,” Clark, November 28, 2017.

The Amazon Effect: Store Closures Everywhere,” Seeking Alpha, January 16, 2017.

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