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New York (CNN Business) - The retail apocalypse in recent years has devastated US department stores, chains and family stores. Stores are closing at record levels. The number of people working in retail is decreasing.
And all that has happened at a time when the economy was strong.
But if the United States falls into a recession, as many economists fear it will happen sometime next year, the problems that affect retail sales could get worse. Store closures could accelerate and layoffs in the sector, a major US job provider, could be extended.
- Forever 21 declares bankruptcy; plans to close up to 178 stores in the US
"Traditional retailers are already in recession," said Mark Zandi, chief economist at Moody's Analytics. “They have been laying off workers for three years. And this is a time when consumers are spending aggressively. If the economy in general is in recession, there will be blood on the streets. ”
On Sunday, Forever 21 was the last major retailer to file bankruptcy. He announced plans to close up to 178 stores in the United States, approximately one third of those he operates. Earlier this month, Fred's, a 72-year discount chain, said it would close its remaining 300 stores.
This year, US retailers have already announced more than 8,200 store closures, well above the previous 6,700 record in 2017, according to Coresights Research. By the end of the year, the annual count could reach 12,000, Coresights estimates. Payless and Gymboree declared bankruptcy for the second time this year, closing almost 3,000 stores between them.
Consumers who change their purchases from traditional stores to online are a big part of the problem. In fact, consumer spending remains strong and unemployment is at least half a century below 4%.
But fears of a recession loom. Other important economies are already in recessions or near them. A trade war between the United States and China could increase the price of consumer goods. A survey conducted by Duke University found that two-thirds of financial directors expect a recession by the end of 2020.
Meanwhile, many retailers have taken large loans.
“If the economy had difficulties, it would accelerate the collapse of many more debt-financed retailers. And I would see an acceleration in store closures, ”said Greg Portell, a leading partner in the global consumer and retail consultant practice at Kearney.
So far, many of the retailers that have failed have done a bad job to meet the needs of consumers, Portell said. A recession would further reduce the better managed retailers. "Their future depends on their being able to find financing," he said.
Consumers are likely to reduce spending if unemployment begins to rise, said Mondi's Zandi, and credit is likely to be more stringent for both retailers and consumers.
"Many retailers are waiting because the wider economic environment is strong, interest rates are low and credit is available," Zandi said. “No sector depends more on credit. If a recession comes, the credit will be cut for both consumers and retailers. That will mean an avalanche of bankruptcies and many lost jobs. ”
And retail is one of the largest sources of employment in the US economy, with 15.8 million jobs, or more than 10% of jobs across the country. The only areas to employ more people are medical care and all levels of federal, state and local government.
"It employs many people in each community," Zandi said. "If consumers withdraw and store closures increase, no other sector of the economy can absorb that portion."
The retail sector has lost almost 200,000 jobs since the beginning of 2017 and most of those job losses come from department stores and traditional clothing stores. The loss of jobs throughout the sector would have been worse had it not been for some new actors who have moved to the vacated stores. In a recession, store openings are likely to slow down and store closures increase.
Until now, the low unemployment rate has meant that many retail company workers who lose their jobs when they close stores can find something else. If unemployment increases, as it does in a recession, it will be more difficult for laid-off employees to find jobs.
“In general, they are jobs with lower wages. But they are very important for a very vulnerable group within the economy, ”said Zandi. He said that because of that, the loss of jobs in retail could make any recession worse, regardless of its causes.
Forever 21
