The retail apocalypse over the past several years has devastated America’s department stores, chains and mom-and-pops. Stores are closing at record levels. The number of people working in retail is on the decline.
And all of that has happened at a time when the economy was strong.
But if the United States slips into a recession, as many economists fear it will sometime next year, the problems plaguing retail could get far worse. Store closings could accelerate and layoffs in the sector — a major provider of American jobs — could spread.
“Brick-and-mortar retailers are already in recession,” said Mark Zandi, chief economist for Moody’s Analytics. “They’ve been laying off workers coming up on three years. And this is a time when consumers are out spending aggressively. If the broader economy is in recession, there is going to be blood in the streets.”
Forever 21 on Sunday was the latest major retailer to file for bankruptcy. It announced plans to close as many as 178 stores in the United States, about a third of those it operates. Earlier this month, Fred’s, a 72-year-old discount chain, said it would close its remaining 300 stores.
US retailers this year have already announced more than 8,200 store closings — well above the previous record of 6,700 in 2017, according to Coresights Research. By year’s end, the annual tally could reach 12,000, Coresights estimates. Payless and Gymboree both filed for bankruptcy for a second time this year, closing nearly 3,000 stores between them.
But fears of a downturn loom. Other major economies are already in or near recessions. A trade war between the United States and China could cause the price of consumer goods to rise. A survey by Duke University found that two-thirds of chief financial officers expect a recession by the end of 2020.
Meanwhile, many retailers have borrowed heavily.
“If the economy were to struggle, it would accelerate the collapse of a lot more of the debt-financed retailers. And you would see an acceleration in store closures,” said Greg Portell, lead partner in the global consumer and retail practice of consultant AT Kearney.
So far, many of the retailers that have failed did a poor job meeting consumers’ needs, Portell said. A recession would put a squeeze on even better managed, up and coming, retailers. “Their future depends on them being able to find financing,” he said.
Consumers are likely to pull back on spending if unemployment starts to rise, Moody’s Zandi said, and credit is likely to get tighter, both for retailers and for consumers.
“A lot of retailers are hanging on because the broader economic environment is strong, interest rates are low, credit is available,” Zandi said. “No sector is more dependent on credit. If a recession comes, credit will get cut off both to the consumers and the retailers. That is going to mean a rash of bankruptcies and a lot of lost jobs.”