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"The End Of The Retail Industry As We Know It Today"
by Epic Economist
"This holiday season may be the last for many struggling U.S. retailers, and that’s a haunting prospect for the entire sector. Even industry leaders are afraid that sales and profits will fall short of expectations again – after three-quarters of disappointing results. This period is typically the most profitable time of the year for many businesses, but each new survey shows that consumer spending is going to be way down in 2022. At the same time, some troubling trends are squeezing the life out of the industry from both sides, and they aren’t likely to go away any time soon. If these companies fail to recover from their losses over the next few weeks, we will soon see a lot more decaying buildings with boarded-up windows where thriving retail establishments once existed. The health of the retail industry is critical to the health of the overall U.S. economy, and right now the outlook suggests that a bloodbath is about to begin.
Roughly 57% of consumers who plan to spend less on holiday shopping in 2022 mostly blame rising costs, and about the same rate reports being worried about finances. Retailers have already taken a series of measures to attract customers' attention and increase sales volumes, such as hosting holiday sales earlier than normal and ratcheting up discounts to move merchandise. But so far their efforts haven’t really paid off.
“As we look ahead, we expect the challenging environment to linger beyond the holiday season and into 2023,” Chief Financial Officer Michael Fiddelke said on the call with reporters. The executive pointed to some worrying trends currently plaguing the industry – and, unfortunately, they aren’t going away any time soon.
A tsunami of retail theft is drastically reducing the company’s gross profit margin and further aggravating Target’s financial problems. In its latest quarterly report, the discount retailer revealed that inventory shrinkage — or the disappearance of merchandise — has reduced its gross profit margin by $400 million so far in 2022 compared to 2021. “And we expect it will reduce our gross margin by more than $600 million for the full year,” Fiddelke added, detailing that there are "a handful of things that can drive shrink in our business and theft is certainly a key driver”. “We know we're not alone across retail in seeing a trend that I think has gotten increasingly worse over the last 12 to 18 months. So we're taking the right actions in our stores to help curb that trend where we can, but that becomes an increasing headwind on our business and we know the business of others," he said.
With almost two-thirds, or 63%, of Americans living paycheck to paycheck, it is clear that in 2022, more people fell out of the middle class. In 2021, that rate was sitting at just 57%. “Consumers are not able to keep up with the pace that inflation is increasing. Being employed is no longer enough for the everyday American. Wage growth has been inadequate, leaving more consumers than ever with little to nothing left over after managing monthly expenses,” LendingClub financial health officer Anuj Nayar highlighted in a recent report.
Even though wages have increased nationally by an average of 5.2%, the price of everything else has climbed much higher, Schiff outlines. “On an annual basis, real average hourly earnings decreased by 3.0% from September 2021 to September. It was the 18th consecutive month of declining real wages on an annual basis. This means while you got a 5.2% raise over the last year, your purchasing power dropped 3%. In other words, you have more dollars in your pocket, but you can’t buy as much with them. In effect, you got a 3% pay cut this year,” the economist notes.
With reduced buying power and carrying massive levels of debt, the average American consumer is completely drained, and so are retail sectors heavily reliant on discretionary spending.
Some of the hardest hit businesses are in the entertainment sector, and even media giant and specialty retailer Disney is reporting a collapse in its operations, suffering over $1.4 billion in streaming losses and a stock drop of around 39% for the year."
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