Retail Industry Update Re Store Closings
I wanted to add a few quick contrarian comments here. I just took a spin around the blogs and it appears over the past week quite a few blogs are pointing to retail store closures as significant.
The list of retail chains closing is the who's who of poorly managed retailers. I've worked as a partner with the retail industry for the better part of two decades and all of these dogs have been on life support for a decade or longer. Starbucks, the lone healthy retailer closing a significant number of stores, has a company-specific problem. The coffee culture is pervasive now leading to substantial competition, the brand has been diluted with oversaturation and the company has lost focus on its core identity & strategy.
Let's keep something in focus. The economy produces economic winners and losers all of the time. More commonly called creative destruction. New category killers have come in to replace these dogs of retail over the last decade and longer. All leading retailers are reporting profits. They are muted profits but they are all profitable. The fact that the worst managed retailers are finally going out of business is a good thing. It frees up capital for economic leaders and/or it destroys capital with no productive value. (By the way, this last point is a major reason why the current incarnation of Wall Street is imploding.)
All of this is completely normal and should be expected. That it is happening where ten or fifteen majors chains are completely closing down is simply a sign that the economy is weak and the marginal players are going to suffer. Remember, to count the top Nasdaq companies today would be void of many of the top companies ten years ago. None of the hot Nasdaq companies of the early 1970s are even around today. The impact of thousands of store closings of the dogs of retail has literally no effect on the economy. That said, what does have an effect is when new store openings falls below store closings. Yes, that is happening and that is a more important data point. The economic impact of weak retailers closing is no more significant than one quarter's loss at AIG.
The list of retail chains closing is the who's who of poorly managed retailers. I've worked as a partner with the retail industry for the better part of two decades and all of these dogs have been on life support for a decade or longer. Starbucks, the lone healthy retailer closing a significant number of stores, has a company-specific problem. The coffee culture is pervasive now leading to substantial competition, the brand has been diluted with oversaturation and the company has lost focus on its core identity & strategy.
Let's keep something in focus. The economy produces economic winners and losers all of the time. More commonly called creative destruction. New category killers have come in to replace these dogs of retail over the last decade and longer. All leading retailers are reporting profits. They are muted profits but they are all profitable. The fact that the worst managed retailers are finally going out of business is a good thing. It frees up capital for economic leaders and/or it destroys capital with no productive value. (By the way, this last point is a major reason why the current incarnation of Wall Street is imploding.)
All of this is completely normal and should be expected. That it is happening where ten or fifteen majors chains are completely closing down is simply a sign that the economy is weak and the marginal players are going to suffer. Remember, to count the top Nasdaq companies today would be void of many of the top companies ten years ago. None of the hot Nasdaq companies of the early 1970s are even around today. The impact of thousands of store closings of the dogs of retail has literally no effect on the economy. That said, what does have an effect is when new store openings falls below store closings. Yes, that is happening and that is a more important data point. The economic impact of weak retailers closing is no more significant than one quarter's loss at AIG.
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