Davidowitz: Brick-And-Mortar Retail An 'Absolute Train Wreck'

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Financial Sense

By FS Staff

The following is a summary of our recent FS Insider podcast interview with well-known retail expert Howard Davidowitz, which can be listened to on our site here or on iTunes here.

We've seen substantial carnage in the retail space in the past few weeks with a pick-up in store closings and layoff announcements.

Howard Davidowitz, chairman of the New York City-based retail consulting and investment banking firm Davidowitz and Associates, has been warning of a retail disaster for some time and explained to our listeners why he doesn't think it's over yet.

Too Many Stores

The reality is, the United States has three times more store space per person than any other developed country except China, Davidowitz stated.

"We're the second most over-stored in the world," he said. "(We're) the second most over-malled in the world; combine that with the tremendous growth of online spending. This is a toxic combination."

Here's a short clip of what he had to say:

Selling Online, Still Doing Terrible

All the growth in retail has been through online retailers, he noted, and we started out with dramatically more retail square footage than we needed at the beginning of this trend.

Also, eight out of the ten largest online retailers are brick-and-mortar stores, who have been pushing hard into the online space. But that isn't the answer to the problems facing retail, Davidowitz stated.

"If you take Staples (SPLS), who does over $11 billion online - that's more than 55 percent of their business - they're in the tank," he said. "If you look at Macy's (M), who's doing more online than any other department store - $5 billion, 18 percent of their business - they're doing terrible."

We're likely going to see large numbers of retail locations and malls close, he added. Store sizes have to shrink and we need fewer stores in general. We'll also have more urban stores and fewer suburban locations.

"This is going to be traumatic because there's $47 billion of shopping-centered debt coming due in the next 18 months," Davidowitz said. "Neiman Marcus is not viable. They can't operate with this much debt. Neither can J Crew. They're overwhelmed. Sears, the largest department store in America, is in liquidation. Kmart is in liquidation."

What we're seeing is an absolute train wreck, Davidowitz stated, and we're going to need massive restructuring in the retail space.

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Cited by Barron's as one of the top financial websites to visit on the weekend, Financial Sense (www.financialsense.com) provides educational resources to the broad public audience through a daily podcast, editorials, current news and resource links on salient financial market issues. Begun in 1985 as a local talk radio program, Financial Sense Newshour (www.financialsense.com/financial-sense-newshour) is a weekly webcast with host Jim Puplava and top financial thinkers. Writing staff of Financial Sense includes: Jim Puplava, Chris Puplava, Ryan Puplava, and Cris Sheridan.

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