Record Number Of Retail Closures In 2017 – ValueWalk Premium

Record Number Of Retail Closures In 2017

ValueWalk has been tracking the so-called Amazon Apocalypse closely over the past few years. Throughout much of 2017, it seemed as if the industry could do nothing right, but towards the end of the year, signs started to appear that perhaps the sector's problems are not as severe as many had believed.

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According to a recent research note from UBS, an estimated 7,795 US retail store closures were announced in 2017, surpassing 2008's record of 6,163 locations shuttering, according to a 2017 report by Credit Suisse. For some perspective, the CS report added that 5,077 stores closed in 2015 and 2,056 stores in 2016.

This story is as much about supply as it is about demand. Analysts note that the US is the most 'over-malled' country in the world. Americans have far more indoor shopping space than anyone else with 23.5 square feet per person recorded for 2016. The next closest country, Canada, has only 16.4 square feet per person.  In Europe the average is around 5 square feet per person, so on that basis, the US has four times as much mall space than Europe. With this being the case, it's no surprise thatt he Amazon Apocalypse is having such an enormous impact on US brick and mortar stores.
Retail Defaults As Sector Gets Used To New Normal
Indeed, it seems as if the demand is there. Data from Mastercard showed overall sales grew 4.9% from November 1 to December 24, the best increase since 2011. Meanwhile, as we reported a few weeks ago, looking ahead at 2018, Moodys sees a “stable” outlook with both retail sales and operating income growing from 3.5% to 4.5%.

Off the back of this forecast, Moody's expects it to be a good year for retail defaults -- following on from the disastrous 2017. In a report published at the end of last week, the rating agency predicted that spec-grade retail defaults to drop to 5% by October 2018 from 9% today, but only after peaking at 11% this March as "we think 2018 is looking brighter across numerous sectors, with even department stores -- one of the worst performers in 2018 -- considerably paring losses."

As retailers adapt to the new normal, tighter margins, higher costs and stronger balance sheets will become the norm Moody's predicts. The report notes that companies must "strive to provide customers with a frictionless experience between online and in-store to prompt customers to use multiple channels to complete their purchase. Competitors that can enable customers to move fluidly between channels are adapting to the change in customer behavior that has moved the beginning of many purchases (whether browsing or research online) to the internet." But these efforts will ultimately lead to higher costs, which will compress margins, leaving little room to compete aggressively on price.

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