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Retail Bloodbath: It’s Not All Amazon’s Fault

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The air continues to come out of the retail bubble. As CNBC put it, “The overarching narrative for much of the retail industry into the first half of 2017 has been store closures and bankruptcies.”

Investors knew retailers were struggling, but it wasn’t until this week’s financial reports that they were able to gauge how much sales had deteriorated due to slowing foot traffic.”

And they have deteriorated significantly. Dillard’s, Macy’s, Kohl’s, Nordstrom and JC Penny all reported dismal first quarter results.  On his most recent podcast, Peter Schiff called it the “retailpocalypse.”

The retail sector is in worse shape today than it was in 2008 during and immediately following the financial crisis.”

Most analysts don’t view the sinking retail ship as a sign of bigger problems in the economy. They blame it on shifting consumer behavior with more and more sales happening online – particularly the growing dominance of Amazon. But Peter insists this only tells part of the story. While online sales have increased significantly, they still don’t make up for the total decline in sales in brick-and-mortar stores. Peter believes the woes in the retail sector reveal some disturbing economic truths about middle America.

Another reason people are shopping on the Internet, other than just the convenience of not leaving your house when you’re doing your shopping, is the fact that the average American shopper is broke. They can barely afford to buy the stuff that they’re buying. In fact, most people are buying stuff that they can’t afford. They’re just buying anyway and they’re using a credit card…Retailing is a shrinking market because Americans’ pocketbooks are shrinking, their paychecks are shrinking.”

Recent Federal Reserve data on debt backs up Peter’s contention. Outstanding credit card debt eclipsed the $1 trillion mark in February, increasing 6.2% from a year ago. Credit card debt now stands at the highest level since the 2008 crash.

It’s not just retail stores that are struggling. Restaurants are also feeling the crunch – and you can’t blame that on Amazon. Industry-wide, same-store foot traffic fell 3.3% in April compared to the previous year. Looking at the past three months, traffic is down 3.9%. Same-store sales in April fell 1.0% according to data released by TDn2K’s Restaurant Industry Snapshot. Tellingly, it’s the low-end restaurants that are struggling the most. The report said, “After years of positive growth and being one of the top performing industry segments, quick service has experienced a downturn in 2017.” The “casual dining” segment also recorded losses. The reported noted that “struggles continue although the rate of decline has lessened somewhat. Average same-store sales in 2017 dipped 2.9% compared to the 4.1% dive in the second half of 2016.

Clearly there is something more going on here than Amazon changing the way Americans shop. E-commerce has certainly altered the retail landscape, but its existence does not account for all of the problems we see in the sector – and it has nothing at all to do with restaurant woes. Peter says it all points to fundamental economic weakness.

Wall Street can just be very dismissive about this and very complacent just chalk it all up to, ‘Hey, this is just automobile putting the buggy whip manufacturer out of business.’ This is not what’s happening. This is a sign of real problems in the US economy.”

Peter talks about these dynamic in detail in his recent podcast. He also discusses how all of this could impact the labor market, especially coupled with government minimum wage policy, and he touches on crazy Federal Reserve policy in light of what’s really happening in the economy.

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Photo by Mike Mozart via Flickr

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