Tuesday, March 28, 2023

"Kroger Hit By A Flood Of Store Closures As A Nightmarish Scenario For Retail Bankruptcies Begins"

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"Kroger Hit By A Flood Of Store Closures As A 
Nightmarish Scenario For Retail Bankruptcies Begins"
by Epic Economist

"Now one of the most famous grocery chains in the U.S. is getting hit by a massive wave of store closings as a nightmarish scenario for retail bankruptcies starts to unfold. Earlier this month, a spokesperson confirmed that Kroger is shuttering multiple stores, and by early 2024 over 400 locations could go dark permanently. Thousands of jobs will be slashed and many communities may lose their main grocer. And the worst part is that Kroger will not be the only one.

The news came as a surprise to many, given that Kroger has been a staple in the grocery industry for decades. "As part of a recent real estate portfolio review, we expect to close 11 stores in April," Teresa Dickerson, a Kroger spokesperson, said in a March 2 press release. "The closing stores, on average, are approximately 30% larger than our current prototype and are underperforming financially."

But according to the source, these initial closings will pale in comparison to what is coming in the months ahead. The compounding effects of lower demand and the rise of online grocery shopping and delivery services are hurting traditional brick-and-mortar retailers. The looming closures are also part of a larger restructuring plan for the struggling company.

As it attempts to save its business and snap a bigger market share in the U.S., Kroger is merging with Albertsons. However, the merger will not be completed without some deep cost-cutting efforts. The grocers will be forced to sell and close hundreds of locations. The firm reports that the merger will see between 250 and 300 Kroger and Albertsons stores sold by November 2023. On top of that, another 400 locations are going to be shuttered so that both companies can pass regulatory guidelines.

The loss of these locations combined will result in a financial hit of approximately $5 billion for the retailers. And the final number of closings could be even higher due to the fact that the grocery chains are being sued by government officials and consumers in California, Texas, and Florida, who filed a lawsuit against the deal, alleging the merger would cause increased grocery prices and fewer choices for customers.

Unfortunately, they’re not alone. There is evidence that consumer spending is falling faster than during the 2008 recession, savings are also declining and debt levels are surging at a breathtaking pace. All of this is worsening the outlook for retail. The industry has seen over 2,600 store closures in the past 12 months. In total, 391 retail companies filed for bankruptcy in 2022, according to S&P Global Market Intelligence data. But this year, the situation could be much more alarming.

A nightmare scenario for bankruptcies has been forming since December last year when companies reported the lowest holiday sales in over a decade. With economic activity gradually freezing, interest rates deteriorating credit conditions for businesses, and the threat of a deep recession at our door, companies should brace for expect considerably more distress in the months ahead. All signs point to a real bloodbath for the sector, and the recent store shutdowns are proof that the carnage has only just begun."
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