Two more retail bankruptcies … it’s a continuation of the “Amazonization” of retail … fingerprints of the Technochasm
About two weeks, Chip Bergh, the CEO of Levi Strauss said that the retail bankruptcies so far in 2020 were just the “tip of the iceberg.”
He went on to note:
… the list [of recent failures] is already pretty long and I expect it’s going to get longer.
He was right.
On Sunday, Tailored Brands, the owner of Men’s Wearhouse and JoS. A. Bank, and the department store, Lord & Taylor, both filed for bankruptcy.
They’re just the latest names in an increasingly long list of retailers that have gone out of business in 2020.
The steady drumbeat of bankruptcies goes back to mid-March, when the lockdown of non-essential retailers began in an attempt to halt the spread of Covid-19.
The U.S. economy has now largely reopened, but this hasn’t provided relief to the battered industry, which has taken on more leverage in the battle to survive.
Unfortunately, things don’t look better when we shift our gaze forward …
S&P Global Market Intelligence reports that 2020 is on track to have the highest number of retail bankruptcies in a decade.
***This retail apocalypse isn’t new — if you’ve been reading Eric Fry, you know that the retail sector has been changing dramatically for years
Eric, our global macro specialist, has been writing about the destruction in the retail sector for many months.
That’s because the coronavirus hasn’t caused these bankruptcies — it’s merely accelerated them.
The origin lies elsewhere — the “Amazonization” of retail.
From Eric, all the way back in our Feb. 25, 2019 Digest:
We’re seeing right before our eyes, this living, breathing, vibrant example of creative destruction. You have Amazon coming in and creating a whole new way of doing things and then simultaneously destroying a lot of other businesses.
The obvious victim is bricks-and-mortar retail. I mean, those companies are dying one by one by one by one. We’ve already seen a zillion retailers go out of business and they’re going to keep going out of business.
In recent months, Eric updated his subscribers on this disturbing market evolution, adding additional detail:
Even before the coronavirus, many “best of breed” retailers were struggling to compete … The coronavirus is supercharging this trend …
… most brick-and-mortar retailers are failing to innovate. As a result, they are sinking slowly into a tar pit of irrelevance and obsolescence. They are going the way of the woolly mammoth.
In 2019 alone, an estimated 12,000 retail stores closed. And the tally of store closures continues growing by the day. Investment bank UBS estimates that U.S. retailers will shutter another 75,000 physical stores by 2026.
On Eric’s note of “store closures” we’ll point you back to a Digest in May highlighting data from Green Street Advisors, one of the most respected data analytics companies specializing in the real estate sector. Greet Street predicts that over 50% of department stores in malls will close by 2021.
More recently, retail research firm, Coresight Research, forecasts that between 20,000 and 25,000 retail locations will close by the end of the year.
***While the coronavirus has kneecapped the earnings of many brick-and-mortar retailers, the bigger danger is how it is now pushing even more shoppers toward e-commerce
Many consumers who formerly were “in store” shoppers have transitioned to “online shoppers.” Even as confidence returns over time, many of these shoppers won’t return to stores — “e-commerce” will be their primary shopping channel.
Back to Eric:
… e-commerce isn’t just about destroying the old ways of retailing and taking market share. It is about establishing an entirely new mode of commerce.
That’s a big reason why “big box” retailers have been struggling for many years. Sears, Blockbuster, RadioShack, Circuit City, Borders, Sports Authority, and Toys “R” Us have all gone to retailing heaven (or are almost there).
***If you’ve been following Eric’s work, you recognize shades of the Technochasm
That’s Eric’s name for the growing wealth gap between the “haves” and “have nots” in society, as well as the growing divide between companies that use and adapt to new technologies (and prosper) versus those companies that cling to old ways (and suffer).
Eric has written a great deal on beloved brands from yesterday that are not adapting well to today’s technologies and market climate.
He’s been warning investors to get these types of stocks out of their portfolios:
Today there are so many ticking time bombs in so many people’s portfolios, because of bad business structures … heavy debt loads … and completely outdated business models that are being disrupted by fast-moving and creative, technological startups.
For an example of a company adapting successfully to this new age of retail (beyond the obvious Amazon), Eric points toward Lululemon. It’s incorporating new technologies into its business model and reaping the rewards.
Below we see the impact of a successful adaptation on a stock price. We compare Lululemon with fellow retailer and struggling adapter, Nordstrom, over the last two years.
While Lululemon is up 164%, Nordstrom has lost 70% in value.
***You could also look at the difference between retailers Macy’s and Walmart
Over the past decade, as Amazon changed the game in retail, Walmart has reacted faster than Macy’s.
Though still an in-store juggernaut, Walmart has added new mobile apps for both customers and employees … it has improved the shopper-purchase experience through online return-initiations … it has added a fleet of robots to facilitate restocking and inventory issues … it has largely automated its truck unloading and inventory sorting process … it added a new concierge shopping service that uses artificial intelligence to deliver a curated assortment of products to its members … and most recently, it’s added “Walmart+” which is a $98/year competitor to Amazon Prime.
Macy’s has been far slower to respond to the shifting retail preferences of the U.S. consumer.
So, what’s happened to their respective stocks over the last two years?
As you can see below, while Walmart is up 63% while Macy’s is down 80%.
***If you haven’t done so recently, carve out some time to sit down and dig into your portfolio
Refamiliarize yourself with what you own. Too many times, we go on autopilot and lose track of what’s happening.
To what extent are your stocks adapting to the advances of technology? Even a few minutes spent Googling your stocks to see how they’re adapting could save your portfolio.
As Eric has noted, it’s not just about taking part in gains — it’s about avoiding losses.
For more of Eric’s research on the Technochasm and how to protect yourself, click here.
Bottom line: technology is changing … our shopping habits are changing … and that means the retail environment is changing …
Is your portfolio changing too?
Have a good evening,