Reading the headlines related to the retail ,apocalypse you could be forgiven for thinking that the industry is dead on its feet. With store closures on track to surpass 2008’s peak this year and nearly 20 major retailers seeking protection from creditors in the past nine months, positive news flow has been rare. What’s more, 40% of retailers that filed for Chapter 11 protection in the past year have gone back to bankruptcy court.

However, despite the stream of bad news and store closures, according to analysts at Cowen and company, the retail landscape is “fairly healthy with growth forecasted of up to 4,000 net openings in 2017.”

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Retail Apocalypse: Not As Bad As It Seems 

Cowen’s conclusion is based on analysis from Cushman & Wakefield, which shows that certain sectors of the retail industry are faring better than others in the current environment.

For example, “un-Amazon-able” service and experiential categories continue to resonate with millennials who “prefer experiences over purchasing new apparel.” Meanwhile, social and entertainment concepts “including movie theaters, escape rooms, craft breweries, and music venues continue to expand and grow share,” a positive for malls. Food halls are also expanding. Dollar stores, off-price retailers, beauty and grocery stores are all growing segments at the expense of stores that cannot compete with Amazon’s offering, specifically, apparel stores.

The changing retail environment is good news for the highest quality malls, but is bad for lower quality establishments that rely on anchor tenants such as Sears to generate traffic. That said, it’s not game over yet for ‘B’ rated malls as flexible rent contracts and store concessions are still providing growth:

“Our take is that retail remains vibrant at A-A+ malls which have productivity levels at $550 per square foot and higher – there remains high occupancy and demand in this segment. On the other hand, B malls are seeing tenants move to a gross lease structure or a variable percent only deal for a few years. Other key trends: concessions also increasing, the use of free rent and higher build out allowances, and the utilization of kick-out clauses given concerns on tenants leaving.”

On a stock-specific basis, Cowan particularly likes Macy’s due to the store’s real estate strategy, which experts believe is the right course of action considering the group’s large property portfolio and flagging sales:

“Cushman & Wakefield are positive on Macy's real estate monetization strategy, and believe the retailer has demonstrated their stores do hold significant value as exemplified by the San Francisco store sale with $235mm of booked profits. Cushman & Wakefield like Macy's partnership with Brookfield on a portfolio of 50 assets, and anticipate ~30 will get done, although conservatively estimate the project could take 5-7 years to complete….In terms of the Herald Square flagship monetization efforts, our experts believe the property has significant value and Macy's has many opportunities for development.”


Updated Sept 27 2017: Will Mother Nature Come To The Aid Of Retail?

After a tough first half in the saga of the retail apocalypse , retailers should fair better in H2 as the weather forecast is good, that’s according to a new research note out this week from retail analysts at Cowen.

Cowen’s retail research team recently hosted Weather Trend's International CEO, Bill Kirk, for a call on weather's impact on retail and discovered that August was coolest it has been in 13 years, “a potential positive metric for back to school apparel sales.” What’s more, the weather outlook for the rest of the quarter “seems very favorable” as it is expected to be the coolest and wettest in eight years.

 

Will weather end the retail apocalypse?

For the struggling retail industry, a cool, wet Q3 may help perk up sales that have been compressed by e-commerce, competition and frugal shoppers. But this isn’t the magic potion the retail industry needs to be able to stage a full recovery.

In fact, Cowen’s retail team believes that the companies set to benefit most from poor weather are apparel related names with strong e-commerce platforms while others may struggle. Department stores may also benefit as the cold, wet weather drives traffic to malls and alleviate some “comp pressure.” The team also notes “department stores did exit 2Q17 with clean inventory positions, which should help with promotions and maintain merchandise margins in case weather is less favorable than expected.”

If temperatures fall further heading into the winter period however, some of the benefits seen during Q3 may not help overall sales. In another interview, Kirk has previously said that a single-degree temperature drop can translate into a 2% to 3% hit in (offline) apparel sales. So, a cold winter could lead to a sales hit in the hundreds of millions of dollars for apparel stores.

Research from  Planalytics, a weather analytics company serving the retail and consumer goods industries shows that as much as 40% of the annual revenue from seasonal items can be affected by changes in the weather. Although in reality, the average change closer to between 2% and 8%, taking into “account both extreme conditions and more commonplace fluctuations.”


Our series on the retail apocalypse continues below with details on how online stores are now coming offline. Updated: Sept 26.

It seems that almost every day another brick and mortar retailer is forced into bankruptcy, as e-commerce giants such as Amazon continue to grab market share.

Toys R Us has been the largest bankruptcy so far, but CNBC also lists 18 other retailers that have collapsed this year including The Limited, Wet Seal, Eastern Outfitters, Hhgregg, Alfred Angelo and Vitamin World.

As these retailers have fallen like dominoes, some analysts have started to predict the end of brick and mortar retailing as we know it. However, according to start-up Hero, 67% of the best-funded e-commerce businesses, including Warby Parker, Away and Allbirds have opened physical stores in the past 36 months.

Online businesses: Coming offline

These businesses have grown up in what Hero calls the “omni-channel landscape and strive to ensure a seamless experience across all their channels,” which means offering customers both a brick and mortar and online presence.

Flexibility is the name of the game with these offerings. For example, Hero notes that fast-growth travel luggage brand Away not only opened its NYC and LA stores, but also launched a pop-up hotel in Paris in time for the city’s Fashion Week. Meanwhile, Nordstrom has recently opened a smaller, neighbourhood concept store called Nordstom Local that stocks no inventory. Instead, the format allows customers to try on clothing with the help of a personal stylist and if shoppers like what they see, they can order the goods and have them delivered. According to Adam Levene, founder and CEO of Hero, “Customers still love browsing physical stores and want the personal touch they provide, they just don’t necessarily have the time to visit a store in person.” Take Made.com for example. The company has seen a 19x conversion rate, with customers spending 80% more when they virtually shop.

Even the luxury industry, which has so far been immune to digital disruption due to the fact that so little brands have been available to buy online is changing to adapt to the omni-channel world. As the likes of Net-A-Porter and Farfetch have shown phenomenal growth, it is forcing the luxury industry to wake up to the demands of the consumer and allow them to shop their collections online. LVMH has recently launched 24 Sèvres, a multi-brand online store, as a way to counter these companies and allow them to control the shopper’s end-to-end experience.

 


Published on: Sep 25, 2017

The impact Amazon and the Retail apocalypse has already had on e-commerce, and the wider retail industry has already dramatically changed investor sentiment towards certain sectors within the industry. And it looks as if the retail behemoth is only just getting with its recent dive into the food retail sector by acquiring Whole Foods.

See also: Can Toys 'R' Us Recapture Its Glory Days?

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Food Retail Is Oversold amid Retail Apocalypse fears

According to investors surveyed by Morgan Stanley, food retail, dept stores, transports, and retail REITs are the sectors most at risk from further disruption. The bank surveyed 40+ investors at it first Amazon Disruption Symposium last week. While multiple sectors are at risk from further disruption, the investors surveyed indicated that other sectors are likely to fare better, as they are more insulated from the Amazon model. For example, dollar stores, pharma and commercial REITS expected to take longest to be disrupted while the investors believed that auto parts retailers and food retailers are the most oversold.

food retail

That being said, 64% of respondents indicated that they believe Food Retail has the most incremental disruption risk from Amazon over the next 12 months. 46% responded that auto parts retailers have ‘sold off more than warranted’ and 33% indicated that they believed food distributors had been unfairly treated by the market.

When asked which other sectors would take the longest for Amazon to materially incrementally disrupt, Healthcare- Pharmacies (48%) and Commercial REITs were the two most chosen answers.

On the topic of Amazon itself, going forward the respondents overwhelmingly believed that between 2016 and 2022 Amazon’s North American retail revenue would grow at a compound annual growth rate of ~22% (in line with Morgan’s estimates). On the international front, 61% of those surveyed expected Amazon to report its first $1 billion of global retail adjusted operating profit in 2022 or beyond.

food retail

Morgan has a price target on Amazon of $1,150 based on a ten-year DCF forecast.

...........

As society marches into the digital future, faces firmly ensconced in their cell phone screens and digital lives, history could be occurring right before our eyes. The Toys R Us bankruptcy is a benchmark in an increasingly pot-marked road that points not only to debt destruction but also the retail apocalypse that is impacting so many stocks and commercial real estate holdings. But low and behold, Toys R Us isn’t the only US retailer to succumb to the trends of a generation.

It wasn’t long ago when Toys R Us was on top of the world, suing any business who even dared us the “R” in their name, such as Bikes R Us, for example. Back in 2000, when some then minute book selling e-commerce firm, Amazon.com, approached them to sell toys online for ten years, the firm agreed. It continued to pile up debt and in 2005 was part of a leveraged buyout and it bought up the real estate it used as confidence in the business model was brimming.

That was then, this is now.

Columbus Circle Investors ValueWalk Jeff Bezos retailers best buy, RadioShack Gymboree, Circuit City , Blockbuster, American Eagle Wal-Mart disruption moats competitive advantage FANGs FAANG FAMGA Amazon WashingtonPost billionaires world's richest people retail Apocalypse

Just a short three weeks ago, Toys R Us debt was trading at $0.97 on the dollar. After the firm announced a bankruptcy earlier this week, that debt plunged to $0.18 on the dollar.

That deal with ecommerce giant Amazon.com didn’t end that well, either. Four years after announcing the deal, it sued Amazon saying they technology giant broke the terms of their exclusive agreement. A judge sided with Toys R Us in 2006, but the real winner today is Amazon. Target had a similar “exclusive” deal that ultimately broke apart, setting both firms back in an ecommerce race that was won by Amazon early one.

Not only has Amazon eaten Toys R Us and other retailers, their retail-based real estate holdings, upon which much of the debt was held, are losing value almost as fast as the firm’s debt.

Unlike Amazon, Toys R Us doesn’t have the benefit of a 250 plus price earnings multiple. It has nearly $5 billion in debt and pays over $400 million per year in interest alone.

The firm attempted to re-engineer its business, adding entertainment to the experience by creating Nerf target practice areas, allowing customers to fly drones, added a musical component and more interaction. It didn’t work, as same-store sales fell 4.1% year over year and the firm continued to bleed red in, racking up $164 million in losses. Even price matching Amazon didn’t boost sales, rather only subtracting from profit margins.

Reverberations are being felt all throughout the toy industry, as Mattel, a major supplier to Toys R Us, witnessed its stock drop 6% Monday, trading near 2009 lows as short interest swells.

And Toys R Us isn’t the only one.

De-t ridden stores such as J. Crew Group, Nine West Holdings and Clair’s Stores are on debt trader’s radar.

“There’s room for a lot of shakeout,” Moody’s Investors Service analyst Charlie O’Shea told Bloomberg. “There’s a lot of retailers out there where you say if they disappeared tomorrow, would they be missed? Or could their position be absorbed by someone else? And the answer to that question is definitely ‘yes.’"Bloomberg. “There’s a lot of retailers out there where you say if they disappeared tomorrow, would they be missed? Or could their position be absorbed by someone else? And the answer to that question is definitely ‘yes.’"

Toys R Us follows Kansas-based Payless ShoeSource and San Fransicso-based  Gymboree who both also fell victim to debt burden and the retail apocalypse.

As Deutsche Bank said in an unusually frank economic assessment, the cause of the next financial crisis is likely to include debt. For retailers, it also includes Amazon.

####

 

Our series on the Retail Apocalypse continues below featuring the land down under, private equity, and of course Jeff Bezos - Updated - 9/5/17  5:30PM EST

When Blackstone Group canceled its US$2.8 billion sale of ten Australian shopping malls, it was a sign of the times known as the Retail Apocalypse. Not just because the scuttled sale was due in large measure to threats from Amazon.com, which were cited in published reports as a reason the sale did not find bidders. But there is also a more ominous economic message, one that is at the heart of political debate in the developed world: the lack of wage growth in the middle and working classes, a problem that analysts say is getting worse.

 

Retail Apocalypse - Amazon is the headline scuttling a shopping mall sale...

When no buyers hit Blackstone’s group offer to sell its shopping malls, it decided to renovate them instead, Reuters reported, citing a source with direct knowledge of the matter.

“They had strong offers, but only for individual assets, not for the whole 10 (malls). There’s been a hit on retail-sector sentiment because of the emergence of Amazon,” the source said of the suburban shopping malls mostly in Sydney and Melbourne.

Blackstone purchased the malls in 2011 from troubled real estate firms Valad Property Group and Centro Properties. The malls catered to “second-tier shops” and were considered “lower quality,” many catering to a middle or working-class demographic.

Since they purchased the malls, the real estate market has been reported as strong, with population growth fueling strong retail growth and rising property values positively impacting all property owners.

But then came the Amazon announcement at a time of shifting economic fortunes.

But the stealth issue is declining wage growth, as Cowen cautions on low-end demographics

When Amazon just mentioned it was planning on launching an online shopping service in Australia, the stock price of retailers and mall owners immediately felt the aftershock.

This news came as home prices started to peak and even reverse lower in the previously hot Sydney and Melbourne markets.

But perhaps what might be hitting the mall operators equally is sluggish wage growth, particularly for the middle and working class.

The shift didn’t go unnoticed.

Retail analysts at Cowen and Company have turned decidedly negative on the lower end of the demographic ladder recently. While Cowen remains positive on the high-end demographic, the numbers they follow are not positive for the lower-income consumer.

“After having been constructive on the lower-income consumer for much of 2016, driven by minimum wage increases, we have become increasingly cautious over the course of 2017,” they wrote in a piece titled “We Are Late In the Cycle For the U.S. Consumer.”

Consumer confidence numbers are showing signs of cracking, with the Future Expectations index, which has generally preceded previous recessions, rolling over. The personal savings rate, currently at 3.5%, is “significantly” below the historical trend and could be on a path to the 20-year average of 4.9%. This could result in $199 billion of money not spent, Cowen observed. Likewise, with unemployment near cyclical lows at 4.4%, non-farm payroll growth of 1.4% is the slowest since 2012. This comes at a time when healthcare expenses are growing at a 7%, eating into personal consumption potential of the lower-income demographic.

Amazon focuses its attention on higher-end demographics, which appear to be doing rather nicely. “While we remain constructive on the luxury consumer, globally, we would note that bifurcation of high and low-end in the U.S. may not be sustainable if asset prices decrease from record highs,” Cowen said in its report.

“The lay of the land had shifted I suspect,” property investor Winston Sammut, managing director of Folkestone Maxim Asset Management, told Reuters. “Of course you want to sell at the peak and I think it looks like the peak has passed.”

........................

 

Our series on the retail apocalypse continues below: Last updated 19 August 2017.

It’s a tough time to be in retail. As online stores such as Amazon continue to dominate the retail space, firms that rely on brick and mortar stores to shift their products are collapsing at an ever-increasing rate thanks to sliding sales, rising costs, competition, and capacity.

At the beginning of July, Fortune reported that True Religion had become the 23 retailer or consumer-orientated company to file for bankruptcy this year based on data compiled by the magazine and S&P Global Market Intelligence. The industry is on track for a record-breaking year for bankruptcies.

And while most analysts blame Amazon for the retail apocalypse , the online retail giant is only part of the problem. Many of this year’s bankruptcies have been companies that have failed to invest in their online offering and have over expanded their physical store presence, making it all but impossible to cut costs fast enough and re-position the business.

S&P Global Market Intelligence said in an article earlier this year that, "Retail's troubles are manifold, and the diagnosis is different in each struggling company's case, but it is widely agreed that the U.S. is over-stored and that the solution for flat or declining in-store sales resides to a significant degree online, where the most sales growth is now taking place."

High levels of debt, bloated fixed costs and need to boost their online presence means that “Many retailers don't have the flexibility to do what they need to do,” according to Moody's lead retail analyst, Charlie O'Shea.

Retailers need money to invest in their e-commerce experience while closing un-economic brick and mortar stores. A recent report from Moody’s notes that over the next ten years the share of e-commerce to more than double. This forecast assumes 3% annual growth for all retail sales and an e-commerce annual growth rate of roughly 15% through 2022, decelerating by 1% annually after that.

Moody’s calculated at the beginning of June that 22 companies or 22% of its retail and apparel category had credit ratings of Caa or lower or distressed status. Many of these names have significant debt falling due in 2018. So, it’s likely there will be a few more failures before the year is out.

It’s no wonder the number of retail bankruptcies this year could surpass 2008’s total this year.

Moody’s: Rising number of retail defaults is manageable wont lead to a retail apocalypse

There has been some concern that rising retail defaults will have a grave impact on the credit market. Earlier this year Bloomberg called shorting loans taken out by beleaguered mall and shopping center operators “the next big short” noting that several hedge funds, as well as Deutsche Bank and Morgan Stanley, were recommending shorting commercial mortgage-backed securities.

According to research from Moody’s losses on defaulted CMBS-held regional mall loans tends to be much higher than other retail property categories and other real estate types like office or industrial. Since 2013 80 regional malls have been liquidated with an average loss severity of nearly 80%. In 15 cases losses were 100% or more. In comparison, the average loss severity for liquidations of other retail categories was 52%, and the average severity for all other property types was 54%. Of the 15 cases of 100% or greater loan loss, 11 were in tertiary markets, where the defaulted mall was the second or third mall in a one-mall town.

However, while the number of mall defaults is likely to continue to rise, Moody’s doesn’t believe that the credit stress could spread to other areas of the market. Although loans on retail properties account for nearly a third of the $345 billion of collateral for CMBS rated by the firm, “troubled malls/malls of concern,” account for only about 2.1% of the universe. Moody’s rated universe accounts for a little over 11% of all US retail properties, and just 241 of the 1,220 US malls.

The rating agency also notes that retail apocalypse  credit risk is limited for all of the REITs it covers, with only two of the 22 companies rated, CBL & Associates Properties, Inc. and Washington Prime Group Inc. having exposure to weak malls.


Our in-depth coverage of the retail Apocalypse continues below with some analysis from goldman- this article was updated on 08/03/17 at 13:00PM EST

Goldman: Brick And Mortar Won't Die, But The Retail Experience Will Be Disrupted

Brick and mortar stores are not dead and will continue to be a dominant force in retail, Goldman Sachs says in a 66-page report out Wednesday. Even Amazon recognizes this, in part seen in their acquisition of Whole Foods. What needs to take place is a disruption of the physical retail model by retailers, Goldman noted, pointing to specific ideas. The physical store by emphasizing what can’t be delivered through e-commerce while pointing to a new role for artificial thought processes and tracking technology.

Goldman: The world is ordering like the Jetsons but shopping like the Flintstones

The future of retail will look nothing like the past. While e-commerce giant Amazon may increasingly garner the lion’s share of lost physical store sales, even the digital pioneers recognize physical store sales will be meaningful in the future. Goldman predicts that in five years, fully 70% of all sales will continue to come from physical stores, but that the successful stores and how they operate will significantly change.

The report on the retail apocalypse highlighted disruptive in store innovations being advanced by Amazon – paying for products without a checkout process, as one example – as revealing the firm’s objective to turn the physical retail experience on its head, but also giving a nod to its relevance in the future. While the world is looking for retail to die, Goldman analyst Matthew Fassler and the equity research team are pointing to the elongated future of retail, one that combines the future with the past.

The world may begin ordering like “the Jetsons,” but the reality is “most Americans still shop like the Flintstones.”

Retail Apocalypse - Macro trends shape the future of retail, including smart relationship marketing

Shaping the retail world of the future will be several macro trends colliding. The first is financial.

New physical retail competition is unlikely to enter a contracting market where venture capital firms are unlikely to tread. This creates a focus on future winners and losers that rise or fall from current view.

“From within the group of incumbents, the successful retailer of the future will need to operate either as an optimized logistics machine, an ultra-convenient shopping option, or an optimized showroom,” Goldman noted, pointing to a degree of futility in attempting to compete with Amazon, Walmart or Costco on a pricing level.

The next trends of the retail apocalypse involve the client relationship, keen target marketing amid the third trend of new market segments.

The future involves forging a tighter relationship with the customer by enabling three cornerstone applications: Business intelligence, intelligent customized marketing and operational cost reductions where deeper partnerships with suppliers occur.

This new approach will help retailers compete in one of two primary marketplaces.

A mass market will target volume against thin profit margins where robust data is used for intelligent pricing and personalized product placement rules the day. The second market will be high value transactions where enhancing the in-store experience will rule the day.

Watch for store video monitors that categorize shopper's demographics and smart fitting room mirrors

The retailer of the future will enhance the store experience to levels not yet seen, which will alter the store experience. The smart technology used to run these stores will generate a real-time personalized experience, but also draw from some of the most advanced eavesdropping and information collection techniques known to the modern world.

Store video analytics will “classify shoppers into demographic groups,” while audio sensors, smart floors and shelves will manage inventory that adjusts pricing accordingly. Even the mirror in a dressing room will be smart, “using RFID technology to identify an item brought into a dressing room.”

“Tech is changing what customers expect and how they shop,” Walmart CEO Doug McMillon was quoted as saying, pointing to testing on eliminating the checkout process currently taking place.

Jeff Genette, the newly minted Macy’s CEO, is looking to disrupt the in-store experience as well. “…we acknowledge that more experimentation with in-store technology and creative solutions for customers who are shopping in our physical stores is an opportunity for focused capital investments in 2017,” he said on a conference call.

The key for retailers is to avoid the “shiny objects” that might lead to faux innovation, futurist Steve Brown told Goldman. “Predictive and prescriptive analytics to help you manage your business better and to understand customers better. In-store sensing, to feed those analytics, so RFID, Wifi, cameras, indoor location type services,” he said. “I think smart stores and smart checkouts to reduce the friction in the buying process are going to be key.”

The massive changes needed to keep retail alive will not only benefit investors in winning stores but could also be a boon to companies that are positioned to benefit from the smart retailing trend the report noted, citing several including Zebra Technologies, IBM and Salesforce.

Stock beneficiaries of the smart store. Source: Goldman Sachs

As July transitions into August, and Wall Street might be more focused on summers at the beach than retail sales heading into fall, Cowen & Company thinks the back to school season for traditional retailers could look rather ugly. But isn't isn't all bad for traditional retailers. Those who execute a brand strategy across customer interaction platforms could turn out to be winners, a recent report says.

Retail Apocalypse - Brands needs significant innovation to succeed

What is looking ugly is the “lack of significant innovation in apparel,” which might keep traditional retailers, already struggling, in the dumpster. There is a bright spot, however. Denim is a product category anticipated to “remain strong,” and sales might benefit from favorable weather. While this trend could be strong, it “will not be enough to save apparel this season.”

Retail foot traffic, which fell in June and July as it has for 27 consecutive months, is likely to be repeated in August and September. Week four July foot traffic ended down 10.57% year over year again, as even with favorable weather forecasts Cowen still anticipates brick and mortar stores to continue to suffer. More troubling is that Cowen’s survey data indicates a potential -17% decline in outlet mall traffic as a “store closure cycle will remain a disruption” to back to school traffic.

Looking at the foot traffic trend, Cowen notes an old punching bag: Amazon. The firm is often used as a price check to margin strapped retailers, who are not doing enough to maintain their brand.

“The burden is on retail companies to innovate the customer experience across mobile and physical retail, offer more unique and proprietary product, and offer cheap and quick shipping options as soon as possible,” the report opined.

On top of these woes, the highly promotional environment in which traditional retail stores find themselves is “worrying,” particularly if retailers cut prices to the bone and negate profitability

Looking on the bright side...

The picture isn’t entirely dire, however.

Looking on the bright side, the weather is expected to be a “favorable tailwind” to retailers as cold and wet weather, the preferred environment for retailers in fall, graces the market environment.

The strong weather is bolstered by consumer confidence at near multi-decade highs, pointing to economic indicators that point to a stable consumer as measured by leading economic indicators.

This robust consumer is likely to be met by healthy retailer inventory positions, as retailers are reducing shipment sizes and increasing frequency of orders. But a benefit that weighs heavily is control of the brand and execution across a variety of physical and technical platforms.

“Our take is that companies with a combination of powerful brand equity, lifestyle positioning, a combination of functional + emotional strengths, and an integrated customer experience are better positioned to: drive profitable pricing, face competition from Amazon, and compete against promotional marketplace pressure,” the report said, pointing to LULU, TIF BID and LVMH as top investments.

.......

Retail Apocalypse in-depth article continues below - last updated July 25th 2017 at 5:30PM EST

As anti-trust concerns in Washington DC regarding behemoth Amazon.com grow – potentially delaying the firm’s acquisition of Whole Foods – the brick and mortar retail picture continues to slide. A Cowen and Company equity research report out Monday noted that overall retail traffic fell significantly as the warm weather of July blanketed the US.

Retail traffic hardest hit in Midwest, South

With the death of brick and mortar retail, there would be a host of collateral consequences. Not only would customer facing jobs inside retail establishments be lost, but the damage to local government revenue streams – many dependent on retail sales for tax receipts – would take a hit as would owners of shopping malls who might lose prime rent paying tenants.

The concerns over Amazon come as weekly retail traffic in the third week of July fell double digits across the country.

Retail traffic declined -10.56% year over year, following last week’s -9.67% decline.

The decline in traffic had a slight regional bent. It was lower in the West and Northeast, -9.52% and -9.65% respectively. The Midwest and South were underperformed by a higher margin, down -11.54% and -11.36%.

The declines came as temperatures were generally similar to last year but precipitation was up 14%. Cowen noted in the Northeast, the weather started hot and extended this to the mid-week but turned cooler and humid during the weekend. In the central part of the country, temperatures were cooler on a year over year basis despite notching +90 and +100 degrees for several days.

Wireless and Electronics stores hardest hit, Apparel not as impacted

While general retail continued to slide, apparel, which often involves the physical interaction of trying on cloths, only saw a more muted decline in traffic.

For the third week of July, apparel traffic was down -5.23% year over year, slightly less than last weeks -5.26% decline.

Among the hardest hit were Wireless and Electronics stores, where traffic was off -26.26% year over year, but same store traffic declined -10.27%.

Things could start to get better, as Cowen forecasts July Week 4 traffic to decline to be -7% to -9% year over year. Weather forecasts point to a cooler and wetter climate on the East Coast, which Cowen says should be favorable.

Cowen modeled the impact on different constituents. The report said long-range weather could be favorable to , AEO, CRI, GPS, HBC, JCP, M, JWN, PLCE, BURL, DKS, KSS, ROST, TJX, TGT, WMT. However, it might hurt COST.

The Retail Apocalypse series on brick and mortar woes and rise of Amazon continues below. Updated Jun 29, 2017 @ 11:15

At the end of May, shares in Synchrony Financial collapsed after the company reported its first quarter results that it was having to set aside more money than expected for soured loans. The lender, which was separated from General Electric in 2014, offers private label store cards to the likes of JC Penney.

This has been a lucrative business for Synchrony over the years. During the past five years, the company’s return on equity has averaged 29%, and the shares have even attracted the likes of Seth Klarman who began buying last year.

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However, according to a new report from Moody’s companies such as Synchrony which provide private label store cards to companies will likely suffer severely from the general retail malaise and aggressive store closures by retailers in what we and others have referred to as a Retail Apocalypse.

ValueWalk Jeff Bezos retailers best buy, RadioShack Gymboree, Circuit City , Blockbuster, American Eagle Wal-Mart disruption moats competitive advantage FANGs FAANG FAMGA Amazon WashingtonPost billionaires world's richest people retail Apocalypse

Further deaths in the Retail Apocalypse ahead as Amazon dominates? 

Synchrony is the largest issuer in the space and according to the credit rating agency consumers owed about $120 billion on private label cards during the first quarter of 2017, compared with nearly $700 billion on general-purpose cards. Private-label cards can only be used for purchases at the stores and websites of specific merchants, while co-branded cards can be used as general purpose cards but have reward programs typically associated with a specific merchant. There are an estimated 300 million active accounts across both categories.

The Moody’s report argues that as the Retail Apocalypse claims more store closures, the likelihood of consumers using their store branded private cards will fall significantly, as consumers no longer have access to the issuing store, and they gravitate online, there will be no added benefits to using the cards. What’s more, according to Moody’s, consumers are more likely to default on their store cards when they can no longer access the retailer. “Consumer payment behavior on cards typically worsens when the accounts fail to maintain ongoing utility, because the accounts will provide less of an ongoing benefit to consumers who remain current, which in turn makes repaying this debt a lower priority relative to other obligations,” the report notes. Even though this may damage consumers’ credit score, defaulting seems less painful because “they will not expect to make future purchases at its other locations or online.” In the event that a retailer is forced into bankruptcy with all of stores and website closing, more material performance would occur.

Further pain ahead as Amazon dominates

Synchrony and its peer Alliance Data rely heavily on private label store card business, so as the retail apocalypse continues, these companies are likely to face more pain. Moody points out that banks also face exposure with Citi and Capital One relying on private label, co-branded card loans for a high single digit percentage of earnings. Wells Fargo, TD Bank have very modest retail private-label and co-branded credit card exposures relative to their overall loan portfolios. However, this is just another sign that the Retail apocalypse could spread well beyod brick and mortar stores.


Retail Apocalypse series on brick and mortar woes and rise of Amazon continues below. Updated Jun 27, 2017 @ 08:31

Since retail behemoth Amazon announced its acquisition of Whole Foods, there’s been plenty of talk about what this deal means for Amazon, the US consumer and US retail environment in general. Along with the usual speculation that this move by Amazon is a thinly veiled attempt to dominate the food retail market, analysts have speculated that the merger could mark the beginning of the end for retail workers. More than half (53%) of tasks in retail were automatable, a report released in July 2016 from managing consulting firm McKinsey & Company calculated. Other industry insiders have also speculated that Amazon’s deal could be good news for the American consumer as the company, which is known for its world-leading infrastructure, conquers some of the last-mile issues that have prevented access and distribution to rural neighborhoods that are more than a mile away from a grocery store. Over 23 million Americans, including 6.5 million children live in these areas according to Business Insider.

According to Bank of America Merrill Lynch’s US retail equity analysis team, the Amazon deal is unlikely to have an immediate impact on the US REIT sector, despite concerns to the contrary.

Amazon--Whole Foods acquisition is not bad news for REITs.....yet

Amazon has come to dominate every market has become involved in since inception, although according to Bank of America, the retail industry might be more resilient. According to the analysis, Whole Foods currently has a 1.9% market share in the US grocery market combined with Amazon’s existing market share of 0.8% gives a combined share of 2.7%. In comparison, Walmart has a 23.7% share of the nation’s groceries, and Kroger’s share is 12%. With such a small segment of the retail market being impacted, Bank of America’s analysts believe, in the near-term at least, retail REITs won’t suffer significantly. There are only 66 Whole Foods locations in listed REITs with Regency REIT making up one-third of this total.

Brick And Mortar Retail Apocalypse - Up To One Million Jobs At Risk

One area of the market that will almost certainly benefit from Amazon’s entry to groceries is warehousing. Some analysts have speculated that Whole Foods stores could become Amazon warehouses, but Bank of America points out that this is unlikely with the average store size of 30,000 ft.² to 40,000 ft.² being significantly below the 100+ thousand square feet typically required for warehouses. What’s more, most stores are located in affluent communities where zoning changes would be required before a warehouse is allowed. This means Amazon may look to increase its warehouse footprint further in out-of-town locations or expand existing stores.

All in all, even though the Amazon/Whole Foods deal has sparked panic among REIT investors, there’s no clear sign that the deal will lead to measurable losses for property owners in the near term if Bank of America’s analysis is to be believed.

Retail Apocalypse series on brick and mortar woes and rise of Amazon continues below. Updated 06/26/17 at 11:40AM EST

As retailers watch the Amazon train on a path to derail their business model, they find themselves at yet another disadvantage to the online giant: they must combat in-store shoplifting. With Amazon now offering a service that lets people try on clothes and return what they don’t want as well as the online behemoth looking to enter the pharmacy markets, the Amazon threats are increasing at the same time as is damage from shoplifting incidents. On a year-over-year basis, the loss from individual shoplifting incidents has nearly doubled, from $377 to $798.48 in 2016, a survey from the National Retail Federation, NRF, and the University of Florida discovered. The increase in shoplifting damage comes at a time when threatened store security budgets are flat or shrinking amid a tough profitability environment.

NFR, shoplifting, Amazon, security
NRF: Shoplifting and retail theft losses are increasing at a time when Amazon threatens and security cuts occur

Retail Apocalypse: As stores are forced to cut security budgets, shoplifting increases

In-store theft amounted to 1.44% of sales and a much larger percentage of net profit loss in 2016. Nearly half, 48.8% of retailers surveyed, said they witnessed increased year-over-year losses from shoplifting, while 16.7% said their losses remained flat, the NRF report pointed out.

Shoplifting and “organized retail crime” was the most significant portion of the problem, while human employees whose jobs are currently under threat accounted for 30% of the losses. Paperwork error in a computerized world resulted in 21.3% of losses and vendor fraud or error accounted for 5.4% of the loss total. Overall, loss to such thefts increased to $48.9 billion in 2016 from $45.2 billion.

With Wall Street demanding earnings growth that often comes from cost cutting, the dichotomy is that preventative measures such as security to reduce fraud are on the chopping block.

“Retailers are proactive in combatting criminal activity in their stores but acknowledge that they still have a lot of work left to do,” NRF Vice President of Loss Prevention Bob Moraca said in a statement. “The job is made much more difficult when loss prevention experts can’t get the money they need to beef up their staffs and resources. Retail executives need to realize that money spent on preventing losses is money that improves the bottom line.”

The reduction in staff is evidenced by fewer actions taken in 2016 than 2015 despite the increase in loss to theft.

NRF: Shoplifting represents a significant loss, but employee theft is a bigger ticket item

While the average store shoplifter took $798.48 per incident, the larger scale thefts were inside jobs.

As shopping malls sputter, the average amount of an employee theft was $1,922.80, up from $1,233.77 in 2015.

While methods of stealth showed marked increases, the number of store hold-ups saw a marked drop, a rare positive note from the report. The average cost of retail robberies sank to $5,309.72 from $8,170.17 in 2015 after more than doubling from 2014 levels.

Return fraud, one problem that Amazon may have to face on relatively equal terms with the brick and mortar retailers, averaged $1,766.27 in 2016.

“The seriousness of retail theft is much greater than most customers realize,” Richard Hollinger, a veteran University of Florida criminology professor and the lead author of the NRF report, said in a statement. “When criminals steal from retailers, consumers pay higher prices, the safety of innocent employees can be compromised and shoppers looking for popular merchandise often cannot find it. Retailers need to continue to invest in new technologies to prevent and prosecute these crimes.”

With online methods tightening their profit margins, it might be technology that helps the retailers.

Some of the technologies being rolled out or developed to prevent shoplifting include artificial intelligence attached to video cameras that can read videos and detect potential shoplifting behavior as well as increasingly cost efficient product tagging and tracking technology that is being perfected by Amazon with new humanless check-out free stores being tested, the Retail Apocalypse continues.

Retail Apocalypse Brick and mortar Updated Jun 13, 2017 @ 10:20 by Rupert Hargreaves.

Another day another bankruptcy in the retail sector. Earlier this week Gymboree, the US children’s clothing retailer became the latest retail causality filing for bankruptcy owing $900 million to creditors. The group, owned by Bain-Capital, has more than $1


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