Retail sales up, retail stores down
Retail sales rose 0.4% in June, according to the Commerce Department, an increase well above economists’ expectations. E-commerce was going strong, with nonstore sales up 1.7% month over month and 11.6% year over year.
Gains by online merchants often come at the expense of brick-and-mortar stores, and the long-running trend of store closures, bankruptcies and job cuts shows no sign of letting up.
Coresight Research reports U.S. retailers have announced 7,062 store closures so far this year; they announced 5,864 in 2018. Coresight estimates that store closures could top 12,000 by year’s end.
Outplacement firm Challenger, Gray & Christmas reports that retailers announced 53,248 job cuts through June this year, on track to exceed last year’s total of 98,563, which was the highest since 2009. Vice President Andy Challenger pointed out that the pain and gain isn’t spread evenly around the country.
“A lot of those job cuts are in retail locations in rural America, in smaller towns, whereas a lot of the jobs being created in warehouses and distribution centers are closer to major metropolitan areas.”
E-commerce lets consumers quickly find the lowest price on offer, posing a serious challenge to retail chains saddled with high costs for stores and employees.
“It’s not just about cutting prices to match the online competitors,” said IHS Markit economist James Bohnaker. “With real estate prices rising, the fixed costs of owning and operating brick-and-mortar stores has gotten a lot of these retailers into trouble where they’re not able to cover costs with the revenue they’re generating in stores.”
Equity analyst Camilla Yanushevsky at CFRA expects continuing trouble for big national department store chains such as Kohls, Dillards and Nordstrom. But she’s bullish on general merchandisers.
“Dollar General has already announced that they plan to open almost a thousand new stores,” she said. Yanushevsky predicts the U.S. economy will slow significantly in the second half of 2019, driving consumers to become more value-conscious and search for bargains.
Mark Cohen, director of retail studies at Columbia Business School, doubts that the current upbeat consumer-spending scenario, evidenced in June’s rosy retail spending report, will last much longer. He predicts that trade tensions and rising tariffs will cause a sharp pullback.
“There’s major insecurity with regard to retail pricing,” said Cohen, “caused by the tariff kerfuffles going on between the U.S. and China, Europe, Canada and Mexico.” And he said consumers are increasingly overextended. “Consumer debt, student debt and mortgage debt are at record levels. Consumers are fueling their spending through debt.”
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