Is the retail apocalypse in the United States about to go to a whole new level?
That is a frightening thing to consider, because the truth is that things are already quite bad. We have already shattered the all-time record for store closings in a single year and we still have the rest of November and December to go.
Unfortunately, it truly does appear that things will get even worse in 2018, because a tremendous amount of high-yield retail debt is coming due next year.
In fact, Bloomberg is reporting that the amount of high-yield retail debt that will mature next year is approximately 19 times larger than the amount that matured this year…
Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20 percent, to $35 billion, and the industry’s leveraged loans are up 15 percent, to $152 billion, according to Bloomberg data.
Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s.
Can you say “debt bomb”?
For those of you that are not familiar with these concepts, high-yield debt is considered to be the riskiest form of debt. Retailers all over the nation went on a tremendous debt binge for years, and many of those loans never should have been made. Now that debt is going to start to come due, and many of these retailers simply will not be able to pay.
So how does that concern the rest of us?
Well, just like with the subprime mortgage meltdown, the “spillover” could potentially be enormous. Here is more from Bloomberg…
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.
I have written extensively about Sears and other troubled retailers that definitely appear to be headed for zero. But one major retailer that is flying below the radar a little bit that you should keep an eye on is Target. For over a year, conservatives have been boycotting the retailer, and this boycott is really starting to take a toll…
Target has been desperately grasping at ideas to recover lost business, including remodeling existing stores and opening smaller stores, lowering prices, hiring more holiday staff and introducing a new home line from Chip and Joanna Gaines. But Target stock remains relatively stagnant, opening at 61.50 today—certainly nowhere near the mid-80s of April 2016, when the AFA boycott began.