The Death Of Retail Real Estate Continues: 77MM Sq.Ft Of Shopping Space Closed In 2018 Already

This report was originally published by Tyler Durden at Zero Hedge

Retail real estate carnage is going to continue this year with no signs of slowing up, as Bloomberg reported this morning that over 77 million square feet of retail real estate has closed this year and that 2018 will easily pass 2017’s record of 105 million square feet closed. The latest example was the fall of the once massive Toys ‘R’ Us name:

The fall of the Toys “R” Us chain, with more than 700 U.S. stores, shows how much retail real estate has changed in just the last decade. When KKR & Co., Bain Capital, and Vornado Realty Trust took over the company in 2005, the buyers justified the $7.5 billion price, in part, because of the supposedly valuable properties that came with the deal.

If there was ever to be any silver lining to the complete carnage in the retail real estate space, it was the argument that has been perpetuated over the last decade or so: despite retail stores closing, the real estate would eventually be worth something.

This argument was made by real estate investment trusts as well as activist investors and analysts who tried to put a positive spin on the death of brick and mortar retail. Now, with more space freeing up, the bid under former retail property is at ask of falling off as supply is starting to get far ahead of demand:

Real estate can put a floor under the value of a retailer and make it easier for the company to borrow. Maybe a particular store concept doesn’t work out as consumers’ tastes change, but in that case, investors can always sell the land and buildings to someone with a better plan. Long-term leases can be similarly valuable. But what if the problem isn’t that a particular store is out of fashion, but that consumers are just shopping less at brick-and-mortar retailers in general? As more storefronts empty, the valuation floor will look wobblier.

This pace of closings puts 2018 on pace to pass 2017’s record of 105 million square feet of retail space closed:

At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.

It doesn’t look like the pace of these closings is going to slow anytime soon, either:

And with shifts to internet shopping and retailer debt woes continuing, there’s no indication the shakeout will end anytime soon. “A huge amount of retail real estate in the U.S. is going to meet its demise,” says James Corl, managing director and head of real estate at private equity firm Siguler Guff & Co. Property owners will “try to re-let it as a gun range or a church—or it’s going to go back to being a cornfield.”

So goes one set of stores, as go others. Despite the fact that the U.S. still has some of the most square footage of shopping space per person, there isn’t enough being spent at these locations to make them worth it:

Even though retailers have been retreating for years, the country still has about 24 square feet of shopping space per person, many times more than any other developed nation, according to research firm Green Street Advisors. Consumers aren’t spending enough offline to support such a generous amount. Vacancies are headaches for landlords, of course, but they also have a mushrooming effect. People may steer clear of a mall that has lost an anchor tenant or has an abundance of “for lease” signs in smaller spaces. Deserted big-box stores, their facades naked and parking lots barren, can spread a sense of blight for blocks around. Who wants to open a business next to a place that’s gone out of business?

The article finishes by pointing out that companies like Amazon and Whole Foods have still seen success using a brick-and-mortar retail concept. It’s possible that the space is simply just downsizing and becoming more efficient instead of disappearing entirely. Regardless, there seems to be a long runway to go in terms of retail real estate freeing up over the next couple of years. The trend of internet versus department stores also remains anything but encouraging.

And the outlook, with overlevered companies and lack of a serious bid under property prices, continues to look grim. Retailers are not going to be able to refi or recapitalize in ways necessary to try and grab onto lifelines. As the sector continues to collapse it’s going to be harder and harder to try and engineer turnarounds – this could lead to a self fulfilling prophecy of accelerating turmoil and collapse for the industry:

But not every deserted retail property can be turned into a gym, theater, or boutique outlet of a tech company. That reality will weigh on any investor thinking about scooping up a struggling chain with real estate assets today—especially buyers in private equity, who borrow heavily to finance their deals. “Retailers cannot support large debt loads,” says Perry Mandarino, head of restructuring at B. Riley FBR, an investment bank that’s worked on retail liquidations. “Add to that the possibility of a decrease in the value of other collateral, such as real estate, and the successful execution of a retail-leveraged buyout may be almost impossible.”

Almost a year ago to the day, we reported on retail closing setting up to hit a scorching pace in 2017. The narrative for 2018 stays the same, only worse. In early 2017 we pointed out the astonishing fact that “Barely a quarter into 2017, year-to-date retail store closings had already surpassed those of 2008.”

We asked in early 2017 if Amazon was assured of becoming the world’s first trillion-dollar stock, perhaps hitting the milestone even before Apple? Here is how the two names have fared since then:

The race is on.

Others have given up waiting for a recovery that seems always out of reach and are settling into what appears to be the new normal – but regardless, 2018 is setting up to, once again, break new ground in misery for retail real estate.

Alibaba Launches Giant Car Vending Machines In China

Shares of Alibaba fell on Thursday morning, despite an exciting news story involving the Chinese e-commerce juggernaut, which is rushing to shake up the way people buy cars in China. Alibaba seems to be taking a page from Amazon’s acquisition of Whole Foods, with the continued push into physical retail. The plan outlined by Alibaba, is to open two giant car vending machines in early 2018, shaped like a futuristic tubular building with a giant cat’s head on top.

Having monopolized the online world, Alibaba continues to push offline with investments in Chinese bricks and mortar retailers.

Alibaba CEO Daniel Zhang said back in November, “physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalized services in the digital economy.”

“By fully integrating online and physical channels together with our partners, we look forward to delivering an original and delightful shopping experience to Chinese consumers,” he added.

So how does this vending machine work?

The smartphone user must open Alibaba’s Taobao app to scan a car. The app will then process the picture and let the user pick a color and other basic options.

Next, the app will require the user to take a selfie to confirm their identity. Once confirmed, the app will arrange for a test-drive at a car vending machine.

To retrieve the car, the customer will gain access through a facial recognition device at the staffless vending machine. According to the company, a “super member” does not need to leave a deposit to retrieve a vehicle.

Once the identity is confirmed, the multi-floor vending machine will rotate cars like a ferris wheel until the car is found. The test-drive is limited to three days, after which Alibaba can arrange for the sale or the user can choose a different model. Alibaba members are limited to five test-drives per month, where Alibaba is relying on its financial services arm to vet members before borrowing.

Alibaba said it will open two locations starting in January 2018 (Shanghai and Nanjing), and it plans to open “dozens” more across China later in the year. The vending machine concept blended with car buying, is an attempt by the company to streamline the buying process to as quick as opening a can of soda.

“Our thinking behind the Car Vending Machine is focused on helping users solve certain problems they face in the car-buying process. To do that, we are building a physical, experiential store that offers staffless car pickup through facial-recognition, three-day ‘deep’ test-drives, and a one-stop-shop that displays [cars from] all mainstream brands at once,” said Huan Lu, marketing director of Tmall’s automotive division.

Consumer Debt Roulette: Debt Is Up $605 Billion BEFORE $682 Billion Is Spent on Christmas

This report was originally published by Daisy Luther at The Organic Prepper

The last time American consumer debt was this high was.. well…NEVER. But now, it seems we are engaged in a high stakes game of consumer debt roulette. And the House is the only one who will win this game.

Last summer, it was reported that people owed more on loans, credit cards, and payment plans than ever in history. The country surpassed the spike that led to the crash of 2008 back in March when debt reached a mind-boggling $12.73 trillion in the first quarter of the year.

Here’s the breakdown, via ZeroHedge:

• Total household indebtedness stood at $12.73 trillion as of March 31, 2017. This increase put overall household debt $50 billion above its previous peak set in the third quarter of 2008 and 14.1 percent above the trough set in the second quarter of 2013.


• Mortgage balances, the largest component of household debt, reached $8.63 trillion as of March 31, a $147 billion uptick from the fourth quarter of 2016.


• Balances on home equity lines of credit fell slightly in the first quarter, down $17 billion to $456 billion.


• Non-housing debt saw mixed changes—an increase of $10 billion in auto loans and $34 billion in student loan balances, and a $15 billion drop in credit card balances.

And we have exceeded the terrible record even more. This year, the debt for American households has grown by 605 billion dollars. THIS YEAR.  That is on top of the insane numbers mentioned earlier.

And it’s causing serious issues.

From extended lines of cash-strapped consumers at New York food pantries to a rise in mental health problems, the latest New York quarterly Fed data paints a dire picture: US household debt has grown by $605 billion in the past 12 months, with $116 billion, or nearly 1 percent, hitting in the latest quarter. Debt is mushrooming everywhere — on mortgages, student loans, auto loans. Credit card debt, meanwhile, has jumped by 3.1 percent in the latest quarter. (source)

You’d think that people would suddenly begin to worry that their debts were outstripping their income, but you’d be wrong.

It hasn’t slowed down Christmas shoppers one bit.

Let’s delve into some crazy statistics about the money spent this past weekend. Don’t let the word “statistics” make your eyes glaze over – you’ll want to read this.

Picture everyone sitting around after turkey dinner in front of the game ignoring each other and shopping on their phones. That’s a pretty accurate picture when you learn that online sales on Thanksgiving day hit $2.9 billion.

Mobile accounted for 61% of all website traffic on Thanksgiving Day, Adobe reported. Shoppers placed 51% more orders on smartphones than last year, according to a Salesforce report emailed to Retail Dive (source)

Isn’t family togetherness wonderful?

Of course, that was only the beginning. At the peak of Black Friday madness, it wasn’t just the brawls over bath towels and toy cars that was jaw-dropping. People spent ONE MILLION DOLLARS A MINUTE shopping at retail outlets and online.

To sum it up, starting out on Thanksgiving Day and continuing through Black Friday all the way to Cyber Monday, shoppers shopped. And they shopped BIG. 70% of Americans shopped over the holiday weekend, spending an average of $335 per person. Let’s break that down a little.

The 174 million Americans who shopped between Thanksgiving Day and Cyber Monday spent an average of $335 per person during that five-day period, the trade group said. The biggest spenders, millennials aged 24 to 35, paid out an average of $419.52 per person. (source)

But it won’t stop there. The eerily accurate National Retail Federation predicts that, despite our record high consumer debt, we’ll still see up to 4% higher spending this year over last year’s insanely high numbers.

The National Retail Federation announced today that it expects holiday retail sales in November and December – excluding automobiles, gasoline and restaurants – to increase between 3.6 and 4 percent for a total of $678.75 billion to $682 billion, up from $655.8 billion last year. (source)

People are planning to spend an average of nearly a thousand dollars PER ADULT – not household. The exact number that one survey shows is $983, which is up dramatically from a more reasonable $417 back in 2000.

(I must be stuck in the year 2000 because I can’t fathom spending much more than that. If that. Here’s some info on how WE do budgets.)

And guess how they plan to pay for it all.

You guessed it already. With more consumer debt.

Credit cards are the most popular form of payment this year, used by 40 percent of shoppers, up from 39 percent last year. That’s tied with debit cards, which will also be used by 40 percent, the same as last year; 18 percent plan to pay with cash and 2 percent will use checks. Of emerging payment methods, PayPal will be used by 36 percent, Apple Pay by 7 percent, Samsung Pay and Google Wallet by 4 percent each and Venmo by 3 percent. (source)

So that debt I mentioned above? The 605 billion dollars extra in American consumer debt this year? That was only year-to-date. We could be adding roughly another 271.5 billion dollars to that debt.

$271,500,000,000.

When we already personally owe $605,000,000,000.

Everyone likes to blame the bankers for the crash in 2008 that sent us spiraling into a recession but in reality, it was caused by consumer debt. No one is forcing us to max out our credit cards or buy houses we can barely afford. But in 2008, banks pushed up the cost of homes and loaned out tons of money to people who really didn’t qualify.

Then, unsurprisingly, they couldn’t make their mortgage payments.

Lending large sums of money into the property market pushes up the price of houses along with the level of personal debt. Interest has to be paid on all the loans that banks make, and with the debt rising quicker than incomes, eventually some people become unable to keep up with repayments. At this point, they stop repaying their loans, and banks find themselves in danger of going bankrupt. (source)

Here’s another explanation of the scenario from 2008.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy….

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And – this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That’s what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don’t do something about it, the results will, inevitably, be another catastrophe. (source)

Clearly, this is unsustainable but people are blithely ignoring it.

Americans are in trouble.

Currently, the issue that could be the head domino that starts the chain reaction of all the others falling is the sub-prime auto loan industry. We could see exactly the same situation we saw in 2008 when people begin defaulting on car loans they should never have gotten.

Analysts have been warning for years that subprime car loans pose a threat to lenders as delinquency rates have edged higher since reaching a post-recession low in 2012. But it wasn’t until last quarter that the least creditworthy borrowers started to show the kinds of late payment profiles that accompanied the start of the financial crisis.

 “We’re seeing an increase in delinquencies across all credit scores, but in the highest credit quality, it’s just a basis point or two,” Chief Economist Amy Crews Cutts said in an email Tuesday. “In deep subprime, the rise is more substantial. What stood out to me was the issuers. Those that have been doing this for a decade or more were showing the ‘better’ performance, while those that were relative newcomers were in the ‘worse’ category.”

…“As soon as lenders (and the investors behind them) get overconfident that they have better models and can make excess profits by disrespecting credit risk, they always get their hats handed to them sooner or later,” Cutts said. “The mortgage market learned this lesson at the expense of the entire global financial system, and it is playing out now in a micro-level, in the ABS market for subprime auto loans.” (source)

But we have the student loan crisis, the mind-blowing amounts of credit card debt (more than a trillion dollars), the ever-growing cost of living and stagnant wages. Add rising healthcare coverage costs that can cost more than all your other living expenses put together (plus a pending 37% increase in 2018) and at some point not too far away, a crash is inevitable.

There is only one way to survive the consumer debt crisis.

You just have to refuse to participate. The solution has to be undertaken personally. You can’t expect the government or the bankers to do what is right – that’s who got us into this mess in the first place.

Resolve now to lower your monthly expenses, get rid of your debt as fast as you can, and learn to live within (or better yet, beneath) your means. There are many variables out of your control, like healthcare costs, inflation, and the job market, but you can absolutely control your spending and your debt level. I have done this myself and I can help you to do the same.(Go here for more information)

You can keep your holiday spending back in the year 2000 and you can resolve not to play consumer debt roulette. You can’t do anything about the rest of the country’s poor spending habits, but you can make yourself more recession-proof.

 

Please feel free to share any information from this article in part or in full, giving credit to the author and including a link to The Organic Prepper and the following bio.

Daisy Luther is the author of The Pantry Primer: A Prepper’s Guide To Whole Food on a Half Price Budget.  Her website, The Organic Prepper, offers information on healthy prepping, including premium nutritional choices, general wellness and non-tech solutions. You can follow Daisy on Facebook and Twitter, and you can email her at daisy@theorganicprepper.ca

With New Patent, Amazon Will Collect As Much Customer Data As Google

A day after Amazon announced it would jump head-long into the bricks-and-mortar grocery business by agreeing to buy Whole Foods Market for $13.4 billion, reports from earlier this week about a new patent issued to the company are starting to make more sense. The patent, which was first reported by the Verge, is for wireless technology that can effectively block customers in Whole Food’s retail locations from “showrooming." "Showrooming" is the practice of using retail locations to test out products before buying them online - a practice that Amazon, by making it easy to comparison shop on a smartphone, helped pioneer.

In its report, the Verge focuses on how the technology will help the company solve a problem that Amazon itself helped create – a problem that has plagued virtually every other traditional retailer.

"Systems and methods for controlling online shopping within a physical store or retailer location are provided. A wireless network connection may be provided to a consumer device at a retailer location on behalf of a retailer, and content requested by the consumer device via the wireless network connection may be identified. Based upon an evaluation of the identified content, a determination may be made that the consumer device is attempting to access information associated with a competitor of the retailer or an item offered for sale by the retailer. At least one control action may then be directed based upon the determination.”

But the technology described in the patent also raises serious concerns about the company’s plans for vastly expanding its capacity to collect and store customers" data. As MarketWatch’s Theresa Poletti reports, with this added capability, Amazon may soon be gathering as much data on its consumers now as Alphabet’s Google Inc.

Stephen DiFranco, an executive-in-residence at the Plug and Play Tech Center in Sunnyvale, Calif., offered a few disturbing hints about the scope of Amazon’s data-collection capabilities in an interview with MarketWatch.

“[The technology] will also triangulate your position in the store, market to you while you are in the store, and understand your behavior in the store,” said DiFranco, who previously worked at Broadcom’s Internet of Things business and led the sale to Cypress Semiconductor CY, -1.72% “If they can collect the same kind of info that they can get while I am surfing on their site, they are going to be able to deliver the same value, the same experience that I get on their site...The company that knows more about the online behavior of me, will now own this same science...while I am in the Whole Foods retail environment.”

 

The positive aspect, he said, is that it will result in better, more convenient shopping experiences for consumers, with their preferences and habits known. It has the ability to turn into a real assistant for shopping. “You passed the milk, you always get milk,” your smartphone may tell you while shopping.

 

DiFranco said that by combining the data Amazon already has about its current customers, plus far more frequent data that comes from grocery shopping, will turn it into an even bigger giant with vastly more data. “This is jet fuel in retail analytics that no one else will have.”

But while some customers might balk at the prospect of shopping in a store where literally every single action and preference is being recorded, investors don"t seem to mind.

Whole Foods’ Market’s largest competitors lost a combined $32 billion in market capitalization yesterday after the announcement. Sell-side analysts have long been calling for a stronger management team to step in and take control of Whole Foods after years of chronically weak earnings and sluggish stock performance. Amazon’s stock also climbed 2.4% on the news, helping it slough off broader weakness in the FAAMG contingent.

Amazon, which already operates a grocery-delivery service in select markets, announced its plans for entering the bricks-and-mortar grocery business late last year when it opened its first small-format grocery store. At the time, the company said it could envision expanding to 2,000 stores. One of the store"s most widely publicized features was its use of automation and AI technology to eliminate check-out lines and allow customers to freely walk out with their purchases. But following the latest revelation about Amazon’s big-data tactics, investors should hope the ecommerce giant also plans to address the more prosaic flaws plaguing Whole Food’s business: Namely, that, as stagnant wages and rising rents force consumers to cut back on spending, the “Whole Paycheck” image will likely continue to alienate shoppers.