The true cause of the demise of big-box retail (and it’s not Amazon)

It's debt, billions of dollars of it


Though all the trappings that historically indicate a boom in retail are accounted for — consumer confidence, low unemployment and a growing economy — stores continue to shutter.

Explanations of behavioral economics dominate the discussion, however a Bloomberg investigation found a common cause underlying most of the relentlessly hemorrhaging sector (almost 7,000 stores closed so far this year): delinquent loan payments.

In Pittsburgh alone, for example, almost 27 percent of retailers have delinquent loans.

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Most retail chains have major debt, typically from private equity firm’s leveraged buyouts, which, in combination with market conditions and negative sentiment, are causing the sector to continue close stores — and Bloomberg’s findings indicate its only likely to get worse.

By next year, $1.9 billion high-yield retail borrowings will mature, with an average of $5 billion borrowings subsequently maturing annually until 2025 and the prospect for refinancing looks precarious as $1 trillion worth of high-yield debt across industries matures simultaneously.

With the Federal Reserve’s increasing of interest rates, investors who were previously willing to take on retailers’ debt are now backing away and so, in combination with negative sentiment toward retail, companies’ efforts to buy additional time seems even more unlikely.

[Bloomberg] — E.K. Hudson