American retailers are closing stores at the fastest pace ever.Keep in mind that e-commerce garnered just 8.3% of all retail sales in the country during the Christmas quarter last year. Also, e-commerce is similar to the old Sears and Roebuck, J.C. Penney’s and Montgomery Ward’s catalogs. Catalog sales used to take longer to arrive. People had to mail an order form and wait sometimes weeks for the mailman to deliver the purchase.
Roughly 10% of mall retail space - or 1 billion square feet - is on the verge of being closed, having rents slashed or transformed into something else. And in March, retailers cut 30,000 jobs, the same as in February.
It was the worst two-month span of job cuts for the sector since 2009 - during the depths of the Great Recession!
This year, as many as 8,640 total stores may close - which would outpace the 6,200 closed in 2008.
And as I've pointed out for years, it's because the companies failed to adapt. They were slow to recognize the changing tides and are now being destroyed by a single company... Amazon .”
But the internet is nowhere near as exciting as the arrival of a new catalog used to be, just faster. And at the height of mail order catalogs most American lived in rural areas where access to brick and mortar stores was very difficult. Those mail order catalogs didn’t destroy retailing. Amazon is nothing but the latest version of mail order catalogs.
The Austrian business-cycle theory (ABCT) accurately describes the problem with brick and mortar. It’s not much different from what happened to housing before the latest recession. Brick and mortar retail is an investment in capital goods, just like housing, cars, and factories. Low interest rates excite investment in capital goods because businesses and consumers usually have to borrow the money to buy them.
For the most part, retailers invested too much in new stores during a period of low interest rates in the hopes that economies of scale would save them by reducing average costs and increasing market share. As a result they built too many stores, just as home builders built too many houses, condos and apartments and car makers built too many factories before the Great Recession.
Investors rarely repeat the same mistakes revealed in the last recession. Housing has not seen the explosion in investing this cycle that it had in the last and car makers have been more prudent. Oil companies and retail businesses did not heed the lessons of the latest cycle and both are suffering now.