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The focus of the Christmas season has been, as usual, on retail sales. However, a bigger issue seems to be coming to light...do retail chains have too many stores?

The concentration here is just on the sellers of consumer goods, but I would like to also expand this to include other organizations that have lots of retail outlets … like commercial banks and other depository institutions.

This idea seems to be getting around this holiday season. Both the Financial Times and the Wall Street Journal have articles this morning discussing the need for a restructuring of retail chains. The Financial Times article is the most blunt claiming that "Bloated US Retailers Must Shut Down Stores to Survive."

The current situation is a result, the Financial Times argues, of "a go-go era of expansion" where the "definition of success is opening more stores."

Managements have been brought up and trained to be ever expanding. Consequently, it is hard for them to do an "about face" and begin to rationalize their operations and shrink in the number of stores that they operate.

But, while we are talking about this, one can apply this criticism to many other organizations that have relied upon retail business … and, here I am thinking particularly about commercial banks … but, there are other retail players that are in similar situations.

The environment created over the past fifty years has been one of constant expansion. The United States economy has basically lived off of credit creation during this time and the government has not only encouraged the taking on of debt but it has guaranteed that, even during economic downturns, credit would be supplied so as to allow companies and stores to continue to hire or, at least, to maintain staff.

As cities have sprawled and shopping malls have shot up almost everywhere, retail outlets have been created at almost an exponential pace.

And, employment at these retail outlets grew and grew and grew. These were the good times. Unfortunately, growth slowed and technology changed.

Expansion, just to expand, hit a limit. The criteria for success changed … and managements continued to act in the same old way.

Furthermore, the innovation in information technology accelerated. Online shopping became more and more important and physical presence became less and less important.

Yes, I know the crazy scenes of shoppers that are breaking down the doors of the stores and injuring other shoppers on Black Friday … or, whatever … capture the news headlines and television spots.

I am not convinced that the majority of these shoppers are from the "wealthier" end of the financial spectrum nor do they represent the larger part of the buying power in the country.

In addition, in recent years, I don't remember a time when I walked into one of these stores and saw a lot of other people. I may be missing something. I have been to Minneapolis, Minnesota in January of two different years and there has been no snow on the ground, so I believe that the people of Minnesota lie about how bad the weather is in their state in the winter.

I have experienced that same thing going into the branches of commercial banks. There are no customers there.

A piece of confirming information is that in going into these retail stores it is hard to find sales people in these stores. This also applies to commercial banks. People who can make "real decisions" are also scarce and hard to find.

This is one of the areas where these organizations have really cut costs … personnel. Rather than cuts stores or branches, the top managements of these companies have gone on cost cutting binges and they have cut people … the other major expense item next to the physical capital.

Such cost cutting across America has contributed to people leaving the work force and to the decline in the labor force participation rate. These retail jobs used to be an easy way to gain employment, but now to find work and to sustain hours is harder and harder to do.

The final aspect of this situation in retail is that the availability of cheap money has help to postpone the needed adjustments to physical capital. This is the aspect of the situation that is treated in the Wall Street Journal article on retail stores mentioned above.

The Wall Street Journal states that "easy credit is delaying the industry's day of reckoning, putting pressure on middle-market chains that already are grappling with slow sales growth and consumers who can be won over only with deep discounts."

The actions of the Federal Reserve over the past four years have done the same thing for the banking industry.

The retail market seems to be bifurcating and the retail stores who have primarily catered to a middle-class market appear to be the big losers. Discount retailers like Dollar General Corp. (NYSE:DG) seem to be increasing their market share. These stores concentrate on lower income areas that people can walk to. In addition, upscale stores like Neiman Marcus Group and Nordstrom, Inc. (NYSE:JWN) seem to also be gaining market share. Retailers that serve middle-income markets like Wal-Mart Stores (NYSE:WMT), J. C. Penney (NYSE:JCP), and Sears Holdings Corp. (NASDAQ:SHLD) have lost market share in recent years.

In the financial markets, credit unions are becoming more and more of a force while smaller commercial banks keep losing market share.

The bottom line is that the United States economy is going through a major transition period.

Washington's credit inflation of the past fifty years created an environment that rewarded … for a substantial period of time … organizations that expanded without limit and that hoarded labor. That time is over and now those that responded to these incentives must restructure. Restructuring has already begun in other areas of the economy and major companies like General Electric (NYSE:GE), General Motors (NYSE:GM), and Dow Chemical Co. (NYSE:DOW) have moved to make substantial changes in their products and businesses.

In my mind there is substantial restructuring to do and this restructuring will contribute to the continued slow growth in the economy and to a sluggish labor market that will continue to see individuals withdraw from the work force.

A not-so-good holiday season will add pressure on these organizations to get-with the cutting back. However, as the Wall Street Journal article suggests, "some analysts think it will take a few bankruptcies and liquidations to bring the market back into balance."

That is, the "pain" is not over.

Source: Retail Overdue For A Makeover? This Applies To Retail Chains And To Commercial Banks