Retail: It is pretty dire.
By Daniel at 10 December, 2009, 1:03 pm
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The momentum is also slowing, so we would expect that the last half will not be as robust as the first half. What does this mean for retail? It is pretty dire.
Also to be expected is heavier returns in January, as cash strapped gift receivers return gifts for cash.
There could be significant outfall from this shopping season. We would expect retail layoffs, in addition to those temp jobs. We also see bankruptcies, and falling CRE rent, as shop owners are unable to meet monthly payments. Many landlords are on a percentage rent structure, and will take immediate hits to the top line.
With the Tishman, and Joseph Freed defaults in Chicago, we should be on the look out for a tsunami wave of Developer and Landlord cash flow related defaults in 2010.
The winners will be Simon Properties, and those with strong cash balances, who can maintain, cover and acquire what is left.
The other factor to consider is that Retail Employment is one of the largest categories of employment in the United States. So even a minor contraction, will be a major deal, with a big headcount.
The next big story for Retail will be next year as well. Companies with International Exposure, like Walmart (in China, etc.) will do better than the ones that are strictly domestic like Target. So what will be the next big hit for retail in 2010…..price inflation. Why? The Chinese Yuan is likely to float higher, given the pressure by the EU, UK, and US on the Chinese Premier, to make an upward adjustment. The Yuan is about 40% undervalued currently. We all know, the Chinese Government will not allow the Yuan to float in the open currency market, it would be a disaster for the US if it did suddenly. Any increase in the value of the Yuan right now, WILL make imported Chinese goods more expensive. What are Target and Walmart filled with. Lets say a smaller P-Protoype Store for Target, has about 50,000 products. Guess how many are imported from China…..40,000 of the 50,000 products. That will immediately hit the bottom line of the consumer, and the top line for the retailers. That, will be the next big story, among the expected bankruptcy filings, until next Christmas.
The internet retail conversion is a story, but it is relatively minor. Less than 5% of sales are done online, so even if it increases significantly, in the short term, it is not much of a factor. The trend however, for the long term, means fewer jobs in retail, less bricks and mortar, less clerks, less managers, less people in the field.
- Chris Coonan
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