Saturday, March 5, 2016

Big-Box Cutbacks

U.S. retail has been overextended for decades, and there are signs that big box stores in particular are facing more difficulty this year.

  • A bankruptcy court has given Sports Authority the go-ahead to close 140 stores with final clearance sales expected to start today in the first locations. The fate of other Sports Authority locations will be decided later, but it seems more likely than not that more locations will close this year and it is far from assured that the chain can emerge from bankruptcy as planned.
  • Staples announced plans to close 50 more stores. The office supply giant was unable to hold off on store closings while its bid to purchase Office Depot awaits regulatory approval. It seems a likely guess that most Office Depot locations will be closing in the next three years whether the Staples acquisition is ultimately approved or rejected.
  • Toy giant Toys “R” Us is struggling to refinance its bonds due in 2017 and 2018. It hopes to replace the junk bonds that provide the largest part of its financing with investment-grade bonds at interest rates at least 1 or 2 percent lower, but investors are skeptical.
  • Sears is in the middle of closing about 50 stores, moving faster than previously planned because of an unusually weak winter apparel season.
  • More quietly, Best Buy is closing stores as revenue declines about 3 percent per year, with 30 stores closing last year and a similar number expected this year.
  • Walmart, with the highest revenue of any U.S. retailer, is closing 154 stores. Meanwhile surveys indicate it is one of the most disliked retailers in the country, with even its most loyal customers giving it poor marks.

My impression is that shopping fatigue is hitting the large open-plan stores the hardest, with shoppers looking for a way to postpone and avoid visits to big-box retailers seemingly just as a matter of peace of mind. One sign of this is that consumers seem to be saving nearly all of the windfall they have been getting from lower fuel prices in the last two years. Even given the high debt load that consumers face, that is a reaction that hasn’t been seen when U.S. consumers faced falling energy prices in the past.