US Economy: Retail Woes Means Bad News for Shopping Malls

I previously mentioned about the ongoing retail woes in the US.

And one of the symptoms can be seen below.

The above chart reveals that inventory has been rising faster than sales. Even more, the ratio has now reached 2008 or recessionary levels!

A big influence on this has been that sales growth for both food and non food outlets has been steadily trending down since 2012 (charts above from St. Louis Federal Reserve's Fed Fred)

Apparently, financial strains in the US retail industry has now diffused or spread to their domestic shopping mall industry

The Business Insider reported (bold added)

Retailers like Sears, JCPenney, and Macy's have been closing hundreds of locations over the last several years, leaving dead or dying shopping malls in their wake as they try to remain profitable amid the growing threat of e-commerce.

But these closures are just the tip of the iceberg, according to a new report from real-estate research firm Green Street Advisors.

Department stores need to close as many as 800 more locations — or one-fifth of all anchor space in US malls — to return to the levels of productivity they saw 10 years ago, according to the report, which was first cited by The Wall Street Journal.

Sears would have to close about 300 stores (or nearly half of its existing locations), JCPenney would have to close 320 stores (31% of its current fleet), Nordstrom would have to close 30 stores (25% of its fleet), and Macy's would have to close 70 stores (9% of its total) to generate the kind of sales per square foot they saw in 2006.

The closures could force hundreds more shopping malls in the US to shut down, according to Green Street.

Department stores, known as mall anchors, have traditionally been major traffic drivers for shopping malls.

But their sales have been declining industry-wide for nearly a decade. Overall, departments stores' average productivity — or sales per square foot — has dropped 24% to $165 per square foot since 2006, according to the report.

Once anchors shut down, mall owners can have a difficult time finding retailers large enough to replace them.

Many owners are aiming to replace department stores with movie theaters, restaurants, and discount retailers like TJ Maxx, Ross Stores, and Marshalls.

Nicholas Eckhart Rolling Acres Mall.

But if a mall is hit by two or more anchor closures at once, then it's harder to stay afloat. That's typically the beginning of a downward spiral leading to ultimate extinction.

Here is the boom bust cycle of US department stores (clients of shopping malls).

Just a reminder, while e-commerce may be a factor to the retail sector's predicament, it has been a minor contributor. 

The share e-commerce sales to total retail sales was just 7.5% as of 4Q 2015. It was 7.4% in 3Q 2015. On a quarter to quarter basis, e-commerce grew by .1% or only 1.2% annualized. From Y charts

Well, symptoms shown above seem to replicate Philippine conditions, although the latter has been in the early phase of the inflection process.

As I have been saying here, the US Dead Malls and China’s Ghost Malls will serve as templates to the Philippine equivalent.