Recovery? We Have Tripled The Number Of Store Closings From Last Year...

Authored by Michael Snyder via The Economic Collapse blog,

Did you know that the number of retail store closings in 2017 has already tripled the number from all of 2016?

Last year, a total of 2,056 store locations were closed down, but this year more than 6,700 stores have been shut down so far. 

That absolutely shatters the all-time record for store closings in a single year, and yet nobody seems that concerned about it.  In 2008, an all-time record 6,163 retail stores were shuttered, and we have already surpassed that mark by a very wide margin.  We are facing an unprecedented retail apocalypse, and as you will see below, the number of retail store closings is actually supposed to be much higher next year.

Whenever the mainstream media reports on the retail apocalypse, they always try to put a positive spin on the story by blaming the growth of Amazon and other online retailers.  And without a doubt that has had an impact, but at this point online shopping still accounts for less than 10 percent of total U.S. retail sales.

Look, Amazon didn’t just show up to the party.  They have been around for many, many years and while it is true that they are growing, they still only account for a very small sliver of the overall retail pie.

So those that would like to explain away this retail apocalypse need to come up with a better explanation.

As I noted in the headline, there are 20 different major retail chains that have closed at least 50 stores so far this year.  The following numbers originally come from Fox Business…

1. Abercrombie & Fitch: 60 stores
2. Aerosoles: 88 stores
3. American Apparel: 110 stores
4. BCBG: 118 stores
5. Bebe: 168 stores
6. The Children’s Place: hundreds of stores to be closed by 2020
7. CVS: 70 stores
8. Guess: 60 stores
9. Gymboree: 350 stores
10. HHgregg: 220 stores
11. J.Crew: 50 stores
12. JC Penney: 138 stores
13. The Limited: 250 stores
14. Macy’s: 68 stores
15. Michael Kors: 125 stores
16. Payless: 800 stores
17. RadioShack: more than 1,000 stores
18. Rue21: up to 400 stores
19. Sears/Kmart: more than 300 stores
20. Wet Seal: 171 stores

If the U.S. economy was really doing well, then why are all of these major retailers closing down locations?

Of course the truth is that the economy is not doing well.  The U.S. economy has not grown by at least 3 percent in a single year since the middle of the Bush administration, and it isn’t going to happen this year either.  Overall, the U.S. economy has grown by an average of just 1.33 percent over the last 10 years, and meanwhile U.S. stock prices are up about 250 percent since the end of the last recession.  The stock market has become completely and utterly disconnected from economic reality, and yet many Americans still believe that it is an accurate barometer for the health of the economy.

I used to do a Black Friday article every year, but I have ended that tradition.  Yes, there were still a few scuffles this year, but at this point the much bigger story is how poorly the retailers are doing.

So far this year, more than 300 retailers have filed for bankruptcy, and we are currently on pace to lose over 147 million square feet of retail space by the end of 2017.

Those are absolutely catastrophic numbers.

And some analysts are already predicting that as many as 9,000 stores could be shut down in the United States in 2018.

Are we just going to keep blaming Amazon every time another retail chain goes belly up?

What we should really be focusing on is the fact that the “retail bubble” is starting to burst.  In the aftermath of the last financial crisis, retailers went on an unprecedented debt binge, and now a lot of that debt is starting to go bad.

In fact, in a previous article I discussed the fact that “the amount of high-yield retail debt that will mature next year is approximately 19 times larger than the amount that matured this year”.  This is going to have very serious implications on Wall Street, but very few people are really talking about this.

Most stores try to stay open through Christmas, but once the holiday season is over we will see another huge wave of store closings.

And as individual stores close down, this will put a lot of financial pressure on malls and shopping centers.  Not too long ago, one report projected that up to 25 percent of all shopping malls in the entire nation could close down by 2022, but I tend to think that number is too optimistic.

The retail industry in the United States is dying, and the biggest reason for that is not Amazon.

Rather, the real reason why the retail industry is in so much trouble is because of the steady decline of the middle class.  The gap between the ultra-wealthy and the rest of us is greater than ever, and we can clearly see the impact of this in the retail world.

Retailers that serve the very wealthy are generally doing well, and those that serve the other end of the food chain (such as dollar stores and Wal-Mart) are also doing okay.

But virtually all of the retailers that depend on middle class shoppers are really struggling, and this is going to continue for the foreseeable future.

Most American families are either living paycheck to paycheck or are close to that level, and these days U.S. consumers simply do not have much discretionary income to play around with.  More hard working Americans are going to fall out of the middle class with each passing month, and that is extremely bad news for a retail industry that is literally falling apart right in front of our eyes.

*  *  *

Michael Snyder is a Republican candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.

America"s New "Trick" To Beat Black Friday Crowds: Wear Employee Uniforms

US shoppers’ lust for Black Friday bargains this year has reached absurd new levels, evidenced by a viral joke that morphed into a disturbing new trend to help shoppers beat Wal-Mart and other big box store crowds by disguising themselves as temporary holiday employees. It started when Twitter user @OverlyLiked announcing he would be selling his Walmart vest for $100.

“I’m selling this Walmart vest for $100,” he wrote. “Use it to skip the line during Black Friday. You can even walk in, grab what you want, and walk out."

I’m selling this Walmart vest for $100. Use it to skip the line during Black Friday. You can even walk in, grab what you want, and walk out????????‍??. pic.twitter.com/Q0UyDHUeU0

— 6"4 (@OverlyLiked) November 20, 2017

Although the tweet was reportedly meant as a joke, earning @OverlyLiked more than 30,000 retweets and almost 80,000 likes, it wasn’t long before he was being inundated with real requests to buy his shirt.

“The popularity of the tweet really did not surprise me… What shocked me was the news coverage of that,” @OverlyLiked told RT, explaining that apart from the bidders, he was also sought out by numerous media outlets covering the story.

Lol people really been trying to buy the Walmart vest. It was a joke i don’t even own a Walmart vest. pic.twitter.com/WFnhEAaNWZ

— 6"4 (@OverlyLiked) November 21, 2017

But @OverlyLiked’s disappointed would-be buyers didn’t need to wait long for other offers to materialize. It seems former and current Wal-Mart employees quickly caught on to the idea and began selling their own uniforms in earnest...

Going out for Black Friday?

Pick up this Walmart vest for $30!

Might be able to cut some lines. https://t.co/8P9MR1SPwz pic.twitter.com/vEsghCDX0K

— Fat Kid Deals (@FatKidDeals) November 21, 2017

Now I know them Walmart vest seemed like a good deal ,but I got these Best Buy joints going for $110 walk right in , skip the line , and take whatever you want !! pic.twitter.com/eVzML3RYbQ

— Teezy (@Jayteeezyyy) November 22, 2017

 

Walmart vest for sale ??80 dollars ..Walk right in ;Get what u want and walk right out on Black Friday ????????‍?? I"m willing to negotiate #FirstComeFirstServe pic.twitter.com/An9yHp275b

— benneth (@KennethRaw) November 20, 2017

 

While others went out looking for them,

If anyone works or has worked at Walmart and has an employee vest..please let me buy it. I’m tryna test something out black Friday.

— scythe (@FuckDae) November 22, 2017

Meanwhile, Walmart has apparently caught on to the hustle, and has asked its employees to “question” anyone they see wearing one of their vests, but whom they do not recognize.

this spread so fast that at the manager meeting today we were told that if we see anyone we don’t recognize on thursday/black friday wearing a walmart vest, to question them. ???????????????? https://t.co/IEA9CTFrkQ

— Emily Gould (@emg_emily) November 21, 2017

The American “Black Friday” tradition has intensified in recent years as big-box stores have sought to fend off the encroaching “Cyber Monday” when shoppers order all their items online - read Amazon - instead of trudging through massive crowds at Wal-Mart, Best Buy or any other retail mecca. Retailers typically open late Thursday evening, before the holiday has even ended, to offer massive bargains, prompting nationwide anarchy as dozens of stories and videos emerge of shoppers fighting one another for the cheapest deals on anything from blenders to widescreen TV’s to underwear. The insanity of Black Friday was perhaps encapsulated best by this meme that made the rounds a few years back:

 

One Person Shot Outside Mall, Brawl Closes Alabama Shopping Center As Black Friday Gets Going

A day after giving thanks, it appears the gentle folk of Missouri and Alabama are more about taking this morning...

One person was shot outside a Missouri mall as swarms of shoppers looking for Black Friday deals saw chaos pop up throughout the country.

As ABC17 reports, a 19-year-old person sustained life-threatening injuries after the shooting in the parking lot of the mall.

Mall policy stipulates no firearms are allowed inside of the building, but it"s unclear if that applies to the parking lot as well.

Officers said they could not confirm whether the shooting was accidental or deliberate.

Additionally,NY Daily News reports another shopping center in Alabama saw an outbreak of violence Thursday, with brawls shutting down a late-night session early.

Police in Hoover, outside Birmingham, broke up fights at the Riverchase Galleria outside Birmingham, with Al.com reporting that one person was treated for injuries by paramedics.

Social media video that appeared to be from the scene showed officers restraining two women amid scattered clothes and displays, though no information about arrests was immediately available.

Both the malls were closed after these events, but are set to reopen at 6 a.m. on Friday.

"Almost Cataclysmic": Barclays Reveals Which Restaurants Are Most Exposed To Collapsing Malls

We"ve spent a lot of time this year discussing the complete collapse of mall-based retailers, a collapse which has resulted in more store closures in Q1 2017 than all of 2016 and will likely claim more victims by the end of this year than any year since the great recession nearly a decade ago.  Here are a couple of recent examples:

But those mall-based apparel companies aren"t the only ones suffering the dire consequences of collapsing mall traffic.  For years, the casual dining space has become more and more saturated with new concepts resulting in thinner and thinner margins for the restaurant industry.  Now, with foot traffic in malls collapsing these same restaurants are about to experience the brutal realization that declining traffic, massive fixed costs, rising minimum wages and razor thin margins aren"t a great combo. 

Thankfully, Barclays" restaurant team, led by Jeffrey Bernstein, has identified which publicly-traded restaurants are about to get screwed the most.  Here"s a summary:

Of the large publicly-traded casual dining chains, Cheesecake Factory "wins" the "most screwed" award with 93% of their locations heavily dependent on mall traffic.

Meanwhile, proving they went full mall-tard (something you should never do, btw), CAKE"s second largest casual dining concept, Grand Lux, is also over 90% dependent on mall traffic. 

Here are more details from Barclays:

Cheesecake Factory (CAKE) operates 90%+ of their stores in a location we define as mall dependent. To be fair, CAKE is often viewed as a destination, with its own separate entrance, and therefore less mall-dependent. And most are in ‘A’ malls which house high-end retailers that draw a more affluent consumer. But the consumer shift to on-line shopping is less about affluence, and more about a change in behavior.

BJ’s Restaurants (BJRI) & Olive Garden (DRI) are the only other portfolio leading casual diners with an outsized percentage of stores mall dependent, at ~60% & ~50%, resp. With that said, we are Underweight BJRI & Overweight DRI. Importantly, this analysis is just one component of a mosaic when formulating our ratings. BJRI is expanding from regional to national, and competes within a very competitive varied menu segment, both of which pose challenges. Olive Garden is already a strong national brand, and the only one competing within the Italian segment, while offering a strong value platform.

As for the remaining casual diners, all operate 25-40% of their stores mall dependent. These include the three steak chains, Outback (BLMN), Texas Roadhouse (TXRH) and LongHorn (DRI), all at 30-40%. We are Overweight all three. Steak concepts are more special occasion, and therefore less mall-reliant, with resilience demonstrated by a positive comp for all in 1H17. Otherwise, Buffalo Wild (BWLD) is also Overweight. While comps have eased and wing prices are elevated, the brand is introducing a new c-suite, has three new activist board members, & potential for large refranchising / cost cutting. Lastly, Chili’s (EAT) also competes within a very competitive varied menu segment, and is viewed as over-stored, and is now looking to redefine a ‘very clear identity’.

Finally, here is a list of states that should probably start preparing for higher restaurant layoffs in the near future...yes, we"re looking at you and your $15 minimum wage California.

Chain-Store Stock Carnage Continues (Despite Biggest Jump In Retail Sales Since 2016)

Oh the irony - as bulls celebrate the best jump in retail sales since 2016, the scene for retailer stocks is an utter bloodbath...

Earlier today, US Retail Sales in July rebounded dramatically to a 0.6% MoM gain - the most since Dec 2016 - driven a surge in motor vehicles (record incentives) and department stores (more inventives?). Year-over-year saw upward revisions and a rebound to a 4.2% rise in July.

The last two month"s declines in Retail Sales have been revised away magically and we have now gone 5 months without a decline...

But one glimpse at the carnage in chain-store stocks tells a very different story... Following a week of disappointing earnings from J.C. Penney Co. and Macy’s Inc., the drumbeat resumed Tuesday as results from Advance Auto Parts Inc., Coach Inc. and Dick’s Sporting Goods Inc. sent their shares crashing...

As Bloomberg notes, at this rate, the group is poised for the worst annual decline in share prices since the financial crisis.

“Everybody is being burned in retail and people are just questioning, ‘Is there any place that’s Amazon-free?’” Gary Bradshaw, a Dallas-based fund manager for Hodges Capital Management Inc., said by phone.

“There will be some winners in retail but boy, it’s just a land mine."

However, Vitaliy Katsenelson more accurately states It’s not just Amazon’s fault. Changing consumer habits are killing old retail biz...

Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.

Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5 percent of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5 percent of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.

Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones. Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones.

Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes.

But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3 percent of that figure is almost $100 billion.

Then there are soft, hard-to-quantify factors. Millennials and millennial-want-to-be generations (speaking for myself here) don’t really care about clothes as much as we may have 10 years ago.

All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four or five times more square footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in in the ’90s and ’00s was borrowing money against her house and spending it at her local shopping mall.

But the bottom line, as we noted previously, is that America"s malls, retail stores, and fast-food restaurants are hugely overbuilt.

Mall Tenants Seek Shorter Leases As America's Relics Of The 80's Teeter On The Brink

As if things weren"t bad enough for America"s mall owners, what with the having to filling their retail space with high schools, grocers and churches, it seems that retailers have grown so uncertain about the future of these 1980s relics that they"re only willing to sign 1-2 leases these days.

As Bloomberg points out this morning, leases renewals used to be 5-10 years in length but are increasingly only being signed with 1-2 year terms.  Meanwhile, thousands of stores are closing each year and it"s only expected to get worse over time.

After more than a dozen bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two -- down from five to 10 years.

“You’re certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal,” said Andrew Graiser, head of A&G Realty Partners. Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them “with a much closer eye than they did before.”

Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of Americas retail research for commercial broker Cushman & Wakefield -- more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year.

“Everyone’s trying to figure out where the bottom of the market’s going to be,” Brown said. He estimates it could occur in 2018 or early 2019.

Not surprisingly, retailers are finding it difficult to sign long-term leases in an environment where 26% of malls around the country are expected to close their doors over the next five years.

Further complicating the lease-length dilemma is the question of which shopping centers will still be around in a decade. Cushman & Wakefield’s Brown sees about 300 of 1,150 U.S. malls shutting down in the next five years.

Perry Mandarino, senior managing director and head of corporate finance at B. Riley & Co., predicts that retail bankruptcies and restructurings will further accelerate in 2018. Some of this will be the result of a long-overdue shakeout of the surfeit of U.S. store space, but the downturn is also compounded by shifts to online shopping and consumers spending on experiences rather than physical stuff, he said.

Meanwhile, landlords are trying to fight back, though it"s a fairly difficult task both arms tied behind their backs.

Landlords “have their backs against the wall, so they’ve been fighting back, hard,” he said. “What you have is a game of chicken up to the end.”

“With all this excess inventory, landlords are trying to do whatever they can to keep malls occupied,” Agran said. “The more empty spaces, the more difficult it is to attract new tenants.”

Frankly, it"s shocking that Abercrombie wouldn"t jump at the opportunity to scoop up some prime square footage in this mall...it already has the Chili"s awning and everything.

Amazon is Now Worth More Than Every Store in the Mall Combined

Content originally published at iBankCoin.com

Everyone knew Amazon was crushing retail, dating back at least a decade. But for some reason, very few went through with the easiest pair trade of all time -- long AMZN, short shopping mall operators. What a simple, yet brilliant, trade. Is it not?

Here"s an old market cap chart of when Amazon topped Walmart. Now it"s worth two Walmarts.

Here"s another old chart that captures the spirit of Amazon"s sales explosion. The current annual run rate is in excess of $140b.

So how does Amazon"s $143b in annual revenues stack up against other retailers?

According to Exodus, there are 31 companies in the Apparel Stores industry, the names you"re all familiar with when shopping at the old dead mall, whose sales equal $107b combined, with net income of $13.6b. Their composite market caps are $81.69b, the inversion of the price/sales ratio is indicative of an industry in duress.

Amazon"s $143b in annual sales and net income of just $9b is rewarded with a market capitalization of $469b.

Think about that for a moment. The entire shopping mall, sporting +1.1% quarterly revenue growth, does more net income than Amazon, on 40% less in revenues, and yet Amazon is valued at 5x what the entire mall is being sold for on the market today.

The Department Stores are an even worse comparison. TJX, M, KSS, SHLD, DDS, JCP, SRSC, SHOS and BONT combined do revenues of $129b, netting $10.17b in income, yet the composite market caps are just $68b on -4.5% quarterly revenue growth.

I get Amazon is the future and they"re growing at 22% per annum. But is it worth more than all the department stores and apparel stores combined 3x over?

And now for the most egregious juxtaposition: Amazon vs the Discount/Variety Store industry.

The Discount Variety stores include WMT, TGT, COST, DG, DLTR, BURL, PSMT, BIG, FRED and TUES. An impressive set of retailers, no doubt. Together, they sport sales of $729b with net income of $51b, enjoying median quarterly revenues growth of nearly 5%.

Their market caps combined equal $389b. If you threw in another COST, you might get to match Amazon"s market cap.

Does any of this shit make sense to you?

The Germans Are Coming... And Their Groceries Will Cost Up To 50% Less Than Wal-Mart

Back in February we reported that as America"s deflationary wave spread through the grocery store supply chain, the scramble for America"s bottom dollar was on, and it prompted America"s largest low-cost retailer Wal-Mart to not only cut prices, but to squeeze suppliers in a stealthy war for market share and maximizing profits, a scramble for market share which is oddly reminiscent of the OPEC 2014 price fiasco and is certain to unleash a deflationary shock across wide portions of the US economy.

As Reuters reported at the time, Wal-Mart had been running a "price-comparison" test in at least 1,200 U.S. stores and squeezing packaged goods suppliers in a bid to close a pricing gap with German-based discount grocery chain Aldi and domestic rivals like Kroger. Citing vendor sources, Reuters said that Wal-Mart launched the price test across 11 Midwest and Southeastern states such as Iowa, Illinois and Florida, focusing on price competition in the grocery business that accounts for 56% of the company"s revenue.

Notably, while Wal-Mart was considering cutting prices to match its competition, the near-monopoly retailer was also seeking offseting cost cuts from its own vendors, in what could lead to a deflationary shock that would ripple across the entire US grocery store supply-chain, with dropping prices leading to margin collapse inside the entire industry, and eventually a default domino effect. 

And, as we also reported, as part of the relentless competition among the largest grocers Wal-Mart would have no choice but to proceed with even more aggressive price cuts in the future. The reason for this is that Germany-based discount grocer Aldi had emerged as one of the relatively new rivals quickly gaining market share in the hotly competitive US grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price.

A second Germany-based discount grocer, Lidl, was planning to enter the U.S. market this year, which together with German Aldi would pose a serious threat to Wal-Mart"s U.S. grocery business.

Now, thanks to a follow up by Reuters, we can safely assume that the upcoming grocer price war is about to turn nuclear because the abovementioned German discount grocery chain Lidl, which is opening its first U.S. stores this summer and is eager to capture US market share at all costs, said its products would be up to 50% cheaper than competitors... which are already caught up in a margin-crushing price war.

"This is the right time for us to enter the United States," Brendan Proctor, chief executive officer for Lidl U.S., told Reuters at a media event in New York late on Tuesday. "We are confident in our model. We adapt quickly, so it"s not about whether a market works for us but really about what we will do to make it work."

And as first order of business, what Lidl will do is generate huge losses by massively undercutting prices in hopes of capturing market share from established names like Walmart, Kroger and Albertsons. Think Uber but for grocery stores. 

There is already a case study of what happenes next, should the two German invaders prove successful. Lidl, which runs 10,000 stores in 27 countries, and German rival Aldi Inc have already upended Britain"s grocery retail market, hurting incumbents like Tesco Plc and Wal-Mart Stores Inc"s ASDA supermarket chain.

Looking ahead, Lidl said it would open its first 20 U.S. stores in North Carolina, South Carolina and Virginia, starting on June 15. Eighty more will follow in the United States within the first year, which Procter said would create 5,000 jobs. Analysts cited by Reuters estimate the company will have more than 330 U.S. stores by 2020.

The stores will be 20,000 square feet in size and have only six aisles. The retailer"s in-house brands will account for 90 percent of the products.

And while the latest German invasion may lead to dramatic changes within the hierarchy of established US grocers, one thing is certain: the US consumer is about to be the biggest winner yet again, as prices for (subsidized) groceries are about to plunge across the nation.

There Is Now A Vending Machine For Luxury Cars

Singapore has injected nitrous into its reputation as a playground for the superrich after a local used-car dealer launched a "vending machine" with 60 luxury cars, including Bentleys, Ferraris and Lamborghinis, on offer. Used car seller Autobahn Motors opened a 15-story showroom in December in a futuristic looking building, dubbing it the "world"s largest luxury car vending machine," according to Reuters, which interviewed Gary Hong, the company"s general manager.

A view of the Autobahn building, located at 11 Jalan Bukit Merah, from August 2016, can be found on Google Maps. While the view predates the showrooms official opening, much of the inventory can be seen from the street.

Potential customers use a touchscreen to pick the car they wish to see; the selected car then arrives within minutes.

Speaking to Reuters, the general manager at Authobahh, Gary Hong, said the vending machine format was aimed at "making efficient use of space in land-scarce Singapore as well as standing out from the competition. We needed to meet our requirement of storing a lot of cars. At the same time, we wanted to be creative and innovative."

Better yet, Gary"s idea appears to be a hit: since its launch, Autobahn has been approached by developers who"d like to use the concept for parking services in the densely populated city-state, Hong told Reuters. 

That said, the concept isn"t unique to Singapore: in March, the U.S.-based firm Carvana opened a similar structure in San Antonio that can hold up to 30 cars.

So with the supply "issue" taken care of, what about demand? Here things are a little shakier.

Singapore"s economy has been on a roller-coaster in recent months, crashing in the third quarter before surging over 9% in Q4 -the fastest pace of growth since 2012 - before it again contracted by 1.9% in Q1.  Economists polled by the Singapore Monetary Authority, the city-state"s central bank, in March raised their forecasts for 2017 GDP to grow 2.3% in 2017, up from the 1.5% estimated in the previous survey published in December. But the rising optimism has yet to be reflected in the SMA"s policy outlook; in April, the central bank left its guidance unchanged, saying a "neutral" stance will be needed for an extended period of time.

Meanwhile, the real driver behind the economy emerged on Monday, when private-home sales more than doubled in April from the same period a year earlier. In short, the local asset bubble - a function of the much bigger bubble over in China - is back. The good news, at least for Gary, is that he will likely have quite a few clients to satisfy for the foreseeable future.

Failing Malls Turn Empty Parking Lots Into Carnivals To Generate Cash

It should come as no surprise that America"s malls, the wonderlands of the 80s, are in big trouble.  After slowly losing market share to online competition for years, brick-and-mortar retailers have finally succumb to changing consumer habits which has resulted in a massive surge in bankruptcies and store closings.

Of course, as we"ve pointed out before, mall owners have tried just about everything to fill their empty spaces including the addition of grocery stores, doctors" offices and even high schools. 

But while most mall owners have been trying to figure out how to fill up the inside of their stores, they apparently overlooked another very "valuable" asset:  their empty parking lots.

With customer traffic sagging, U.S. retail landlords are using their sprawling concrete lots to host events such as carnivals, concerts and food-truck festivals. They’re aiming to lure visitors with experiences that can’t be replicated online -- and then get them inside the properties to spend some money.

“Events draw people to come to the shopping center,” said Keith Herkimer, whose company, KevaWorks Inc., is working with big landlords including GGP Inc. and Simon Property Group Inc. to produce outdoor events. “They generate revenue for the owner and offer a chance for cross-promotion, so they can try and drive more customers into the stores.”

The idea, obviously, is to attract customers for experiences that can"t be replicated online with a focus on everything from movies nights to carnivals.

Retail landlords have already made a push toward experience-driven offerings by adding restaurants, movie theaters and activity centers for children. Many malls are also adding rotating stores around for only a short time -- known as pop-up shops -- that are meant to attract young customers who see shopping as an event.

Now, events are reaching beyond the malls themselves. Herkimer’s task is to bring crowds to parking lots with events that generate as much as $60,000 a week for mall owners from the largest outdoor events.

The idea is gaining traction. Next month, Simon Property is having the first carnival in its Round Rock Premium Outlets parking lot, about 20 miles (32 kilometers) north of Austin, Texas. Similar events are being held for the first time at locations such as Central Mall in Port Arthur, Texas, managed by Jones Lang LaSalle Inc., and a Cheyenne, Wyoming, mall owned by CBL & Associates Properties Inc. In July, Simon Property’s Orland Square Mall, southwest of Chicago, will be holding its first parking-lot food-truck festival, with plans for live music performances, Herkimer said.

Meanwhile, REIT investors are finally starting to understand that while carnivals may help to pay the electricity bills of America"s malls they do little to help generate a return on the hundreds of millions of dollars worth of retail square footage that lies empty inside the stores.

US Restaurant Industry Suffers Worst Collapse Since 2009

What tentative hope had emerged for a rebound for the U.S. restaurant industry at the start of the year, was doused last month when in its February Restaurant Industry Snapshot, TDn2K found that "Restaurant Sales and Traffic Tumble in February" and reported that same-store sales fell -3.7% in February, with traffic declining -5.0% . It did however leave a possibility that things may turn around as a result of the prompt disbursement of withheld tax refunds in the month, which it suggested may have adversely affected sales and traffic.

Alas, that did not happen, and restaurant struggles continued in March as sales and traffic again declined year-over-year: same-store sales were down 1.1% while traffic dropped 3.4%. March results were disappointing for an industry desperately trying to reverse performance trends; with sales now negative in 11 out of the last 12 months, the longest stretch since the financial crisis. There was a modest improvement sequentially, however, and while still negative, sales improved by 2.5% points compared to February as traffic rose marginally by 1.6%.

Explaining the sequential "improvement", Victor Fernandez, executive director of insights and knowledge for TDn2K, said “March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February. In addition, the industry likely benefited from the shift in the Easter holiday, which fell in March in 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales."

However, it was not enough: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”

As TDn2K further adds, with a same-store sales decline of 1.6%, the first quarter of 2017 was the fifth consecutive quarter of negative results. The last time the industry experienced a similar period was in 2009 and the first half of 2010, as the economy began recovery following the recession. Only this time the move is in the opposite direction. 

Furthermore, the first quarter of 2017 followed a very disappointing 2.4 percent sales drop in the fourth quarter of 2016, highlighting the difficult operating environment currently facing many operators.

Worse, same-store traffic dropped even more, or -3.6% in Q1, consistent with the average -3.4% quarterly declines experienced since the beginning of 2016.

The growth rate in check average continues to trend down slowly. For the first quarter of 2017, the average check was up 1.9%, somewhat lower than the average 2.3%growth reported for 2016. This is likely the result of brands relying more on promotions and conservative menu price increases in response to continual declines in traffic. It confirms that restaurants don"t have even the most modest pricing power to offset volume declines.

On the other side of the spectrum, as has been the case in recent quarters, segments with the highest and lowest average check experienced better results. The strongest performance in the first quarter came from upscale casual, followed by fine dining and quick service. It is important to mention that fine dining and upscale casual are among the segments most negatively impacted by the shift in Easter.

Meanwhile, the worst segments in the first quarter were family dining and fast casual. Family dining concepts were also among the most negatively affected by the Easter shift.

A separate report from the National Restaurant Association found that its proprietary Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 98.8 in February – up 0.2 percent from a level of 98.6 in January, however this was the fifth consecutive month in which the Current Situation Index contracted (below 100), as  operators continued to report dampened same-store sales and customer traffic levels.

Furthermore, the NRA found that restaurant operators overall continued to report soft same-store sales in February, with results that were similar to January’s levels. 33% of restaurant operators reported a same-store sales increase between February 2016 and February 2017, while 51% reported a sales decline, a deterioration from January. Restaurant operators also reported dampened customer traffic levels in February.

Only 27% of restaurant operators reported an increase in customer traffic between February 2016 and February 2017, while 57% reported a decline in customer traffic. In January, 26  percent of operators reported higher customer traffic levels, while 54% said their traffic declined.

One notable finding in the TDn2k report was that despite waiters and bartenders being the fastest growing job category under the Obama "recovery", restaurant operators list finding enough qualified employees to keep restaurants fully staffed as a primary concern. This is mainly due to skyrocketing restaurant churn rates as current restaurant workers believe they can find better options elsewhere, only to return disappointed. Turnover for restaurant hourly employees as well as managers increased again during February according to TDn2K’s People Report. These rates are currently higher than they have been in over ten years and rising.

Making matters worse for restaurants, some are finding that only by  offering higher compensation can they retain workers. So even if wages have been increasing slowly in recent years, this is expected to change soon as the labor market continues to tighten. In fact, according to a recent survey by People Report, about 80% of restaurant companies reported having to offer additional financial incentives to attract candidates in tough recruiting markets. In most almost all cases, those incentives take the form of higher base pay. Who would have though that there is a shortage of line cooks and waiters in the US.

While many continue to seek answers in the pernicious tailspin in the US restaurant industry within the supply side - pricing, competition, layout - the reality is that the key variable may remain with demand.  As some have speculated, it could simply be the reluctance or inability to eat out when money is being inflated elsewhere, to cover higher cost-of-living increases in other areas, such as rent or healthcare, even as wages for large parts of the population remain frozen.

To be sure, restaurant spending is a thermometer for discretionary spending, which varies with how well consumers are doing, and it’s the first to react as Wolf Richter correctly points out. When consumers hit their limits, the first things they cut are discretionary items, such as eating out.

As such, the worst tailspin in the US restaurant industry since 2009 remains the biggest flashing red alert suggesting that when it comes to that invincible dynamo behind the US economy, the American consumer, things have not been this bad in a long time.

"The Retail Bubble Has Burst" - Summarizing The Dark 4Q Earnings Commentary Of Retail CEOs

Amazon"s willingness to sell almost any product imaginable at a loss, combined with a massive bubble in retail real estate square footage courtesy of decades of low interest rates seems to finally be catching up with the traditional bricks-and-mortar retailers of America. 

As evidence, Scott Krisiloff of Avondale Asset Management compiled the following sample of relatively downtrodden commentary from America"s largest retail CEOs, all of who seem to be throwing in the towel on hopes of any near term upside for their industry:

Everything is not awesome, in fact, it"s kind of awful

“Our industry is the midst of a seismic shift, and, of course, you read the headlines. In fact, many of you write the reports, we’re operating in an incredibly challenging environment. All across the retail industry, many of our competitors are aggressively rationalizing their assets. They are closing stores, exiting markets. They’re cutting costs just to keep their heads above water. We’ve not seen this number of distressed retailers since 2009 in the Great Recession.”   - Target CEO Brian Cornell

Cheap debt created a massive retail real estate bubble that is now bursting right before our eyes

“Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce. Our industry, not unlike the housing industry, saw too much square footage capacity added in the 90’s and early 2000’s. Thousands of new doors opened and rents soared; this created a bubble, and like housing, that bubble has now burst. We are seeing the results; doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.” —Urban Outfitters CEO Richard Hayne (Retail)

Profitability "race to the bottom" is on as brick-and-mortar stores make "investments" (a.k.a. "slashes prices") to drive volume

“We certainly view 2017 as a year of investment. In 2018, we’ll continue to transition as these different initiatives begin to mature. As we get into 2019 and beyond, we certainly expect stability and a return to growth…We’ve got to invest to grow. We’ve got to reimagine our stores. ” —Target CEO Brian Cornell (Retail)

“we plan to do what any good portfolio manager would. Invest resources in the most promising opportunities, diversify to lower risk, and increase liquidity…Our highest priority is where we’ve had the most recent success, digital” —Urban Outfitters CEO Richard Hayne (Retail)

Inflation may not be as strong as advertised

“Regarding deflation, overall, primarily in the US, we have seen deflation in the 1%, 1.5% range in February. Departments such as foods, sundries, frozen foods, liquor meat, dairy showed the most deflation on the foods and sundries side. On the non-food side consumer electronics continue to be deflationary, primarily in the TV category…The collective view is inflationary, or less deflationary, for the next few months and maybe a little inflationary, but it’s a crap shoot.” —Costco CFO Richard Galanti (Retail)

“we also have to acknowledge the ongoing challenges facing our industry. Our customers are facing a difficult retail environment due to deflation and increased competition. We view deflation as cyclical, inflation will come back at some point but while it’s here, it’s leading to some very real challenges for us and our retail customers.” —UNFI CEO Steven Spinner (Food Distributor)

Retail real estate glut + Market share loss to online = Disaster for REITs

“This would be fine if the increase in DTC sales were wholly additive, but they’re not. Digital shopping is partially replacing store shopping and thus is negatively impacting store traffic and store generated sales. Flat to negative store ‘comps’ are causing occupancy deleverage and eroding four-wall margins.” —Urban Outfitters CEO Richard Hayne (Retail)

But, chin up because this is all "good news" as retail shares will tank and create opportunities for those on wall street who survive

“these inflection points come around every generation or so. And strong retailers endure, while others, well, they don’t. Pick your era defining change throughout history from downtown department stores to suburban malls, catalogs, e-commerce.” —Target CEO Brian Cornell (Retail)

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Meanwhile, as we pointed out earlier this week, the biggest losers in this retail melt down will inevitably be the investors in America"s massively levered REIT companies. 

In fact, the latest note from one of the world"s most vocal mega-bears, Horseman Capital"s Russell Clark, perfectly summarized the slow-motion train wreck that is currently wreaking havoc on mall REITs in a note titled "Mall Rats":

“Intriguingly we have started to see volumes of real estate transactions for shopping malls fall. This means that the number of transactions to buy or sell properties is beginning to decline. Last time this happened, rents began to fall a year later.

His full note is below:

MALL RATS

Shopping mall REITS have been a fantastic investment over the years. Not only have they provided investors with large capital gains, they have also typically offered above market dividend yields. My interpretation of the REIT model is that the operator collects rents from a diverse number of retailers. This is then passed on to the end investors after costs and financing. The REIT manager reduces risk by diversifying the retailers paying rent, and by also spreading the risk geographically. If the REIT manager can acquire more real estate assets at a yield higher than what it needs to pay out as dividend yield, then the REIT can issue more shares and grow indefinitely. Mall REITs have generally done well, except during the financial crisis.

However, it seems to me that North America could well have too many shopping malls. On a per capita basis, the US has twice the space of Australia and 5 times that in the UK.

One source of REITs revenue growth comes from acquiring more malls. Intriguingly we have started to see volumes of real estate transactions for shopping malls fall. This means that the number of transactions to buy or sell properties is beginning to decline. Last time this happened, rents began to fall a year later. Perhaps it’s a sign that buyers believe rents have some downside risk?

Many people in the market are aware of the problems that the large department stores in the US are currently facing, and their resultant plans to retrench. This affects two of the largest shopping mall REITs that have the department stores as tenants. The reality is that the shopping mall REITs charge extremely low rents to the department stores. The large shopping malls use the department stores to lure traffic, and then make their money from higher rents charged to speciality retailers. Often the per square foot rent of the specialty retailer can be 30 times or higher that paid by the anchor tenant. Looking at the top 2 shopping mall operators, they disclose their top rent payers. Recent share prices performance of 8 shared tenants has been poor, and management commentary has seeming implied that they may also be looking to reduce store count.

It should also be pointed out that many tenants have a clause in their lease to reduce rents should an anchor close a store. Thus, even though the loss of rent due to an anchor closing is minimal, the knock-on effect of reduced rents from the remaining tenants is a serious concern for the REITs.

One of the other problems that shopping mall REITs face is that the size that the large department stores take up is more than 400 million square feet. The largest and most successfully specialty retailer is TJ Maxx which currently has 100 million square feet. It is difficult to see any single retailer quickly being able to fill the space made vacant by department store closures.

Back in the lead up to the financial crisis we found that the share prices of REITs and their tenants were very closely related. Recently we have seen tenants share price weaken again, but REITS remain relatively strong.

Investors are advised to exercise caution with the shopping mall REITs