America is in the midst of a “retail apocalypse”: 6,800 chain stores are closing this year. It’s true that online retailers and winner-take-alls like Walmart have delivered the coup de grace that finished off these stores, but the conditions that made them weak enough to kill are driven by Wall Street, not Walmart.
The common factor shared by the disparate struggling and bankrupt retailers — Toys R Us, Claire’s, Nordstrom’s, Macy’s, Sears, Penney’s, Circuit City, Sports Authority, Payless, Radio Shack, etc — is that they are saddled with crushing, inescapable debt that they took on when they were acquired by hedge funds that loaded the debt on as a way of stripmining the companies; also, they increasingly rely on predatory store-cards that can be used as cover for more financialization, debt-loading, and extraction by investors who profit even (especially) when their investments go bust.
Indeed, many of these companies are profitable, and some even experienced sales growth, even as they are circling the drain, because any dollar that comes in goes straight to debt service.
What’s more, the structure of this debt is such that the payments these companies “owe” are about to balloon, guaranteeing the end of the line for them.
Amazon and Walmart may push these companies over the brink, but America’s financial engineers brought them to that brink.
Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.
America’s ‘Retail Apocalypse’ Is Really Just Beginning [Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon/Bloomberg]
(Image: WestminsterCO)
(via Naked Capitalism)