Here at Financial Helpers, we’ve often covered several stories involving the fall of retail. From Forever 21 to Toys “R” Us, brick-and-mortar seems to be going the way of the dinosaurs. Many cities now have massive warehouses that are empty. Malls are emptying fairly quickly as well. Even the number of people who work in the retail industry is dropping.
You might think this has to do with the economy, but it is continuing now. The economy is great and people are spending tons of money. We’ve had record-breaking holiday seasons the past few years and this season should be no different. If people are spending money, why are these stores closing down? Also, what impact is it having on the economy?
Its impact will mostly be felt if the U.S. enters a recession soon. Economists are split on whether that will happen in the next few years. Usually when a recession happens, job losses are numerous. People start spending much less money and instead start saving what they can. Right now, employment is at record numbers, so when the flow of money stops, so will job numbers.
Here’s the difficult part of this: retail jobs usually help Americans get through a recession. The number of people who leave office jobs for retail or fast foods starts to climb. They have no other choice while waiting for the job market to get better. Yet, if these places are closing down and they’re cutting jobs, where will they go?
The Recession Has Already Started in Several Retail Industries
“Brick-and-mortar retailers are already in recession,” said Mark Zandi, chief economist for Moody’s Analytics. “They’ve been laying off workers coming up on three years. And this is a time when consumers are out spending aggressively. If the broader economy is in recession, there is going to be blood in the streets.”
A major part of the problem isn’t that Americans aren’t spending enough. They’ve just changed the way they buy things. Why go to Forever 21 when you can get the same types of clothing online? Traditional stores and malls are on the outs. Not to mention, the trade war between China and the U.S. is already increasing costs. This will force many businesses with razor-thin margins to close their doors or cut back on jobs.
“If the economy were to struggle, it would accelerate the collapse of a lot more of the debt-financed retailers. And you would see an acceleration in store closures,” said Greg Portell, lead partner in the global consumer and retail practice of consultant AT Kearney.
“A lot of retailers are hanging on because the broader economic environment is strong, interest rates are low, credit is available,” Zandi said. “No sector is more dependent on credit. If a recession comes, credit will get cut off both to the consumers and the retailers. That is going to mean a rash of bankruptcies and a lot of lost jobs.”