The Strategist

Online sales knocking out traditional retailers

03/22/2017 - 13:55

On Tuesday, one of the largest supermarket chains in North America, Sears, said that results of its operations raise "doubts about the company's ability to continue its operations." Experts note that the market is somehow ready for possible bankruptcy of one of the largest and oldest retail chains in the US. This is not a particular case, but a general trend - traditional retailers are finding it increasingly difficult to compete with online stores.
Sears Holdings stated in a notice to regulators: "Our operating results are indicating significant doubts related to the company's ability to continue operations". Sears Holdings operates a network of about 700 Sears stores in the US, Canada and Mexico, and 735 Kmart stores in the US. However, the company noted that they are making every effort to find funds to continue normal work. In January, the retailer announced plans to close 150 stores as part of restructuring, and in February decided to cut costs by $ 1 billion a year and reduce the debt burden by $ 1.5 billion.

"We recognize that we have to work in difficult conditions", Sears commented in a notice. The company’s loss amounted to $ 2.2 billion in 2016, yet another unprofitable year. For several years, experts have been noticing that ordinary shops and networks are increasingly suffering from competition with Internet commerce. In February, JC Penney's retail network said it would shut off 130 to 140 stores. A month earlier, Macy's network announced plans to close about 100 stores.

Experts note much lower buying activity in these stores than on the Internet. Craig Johnson, President of consulting company Customer Growth Partner, told Reuters that commerce in shops in different parts of the country "is not so enliven."

In general, all this is happening because of change in consumer sentiment. In recent years, online sales have literally skyrocketed, and low interest rates have simply strangled retailers.

According to the latest data from the National Retail Federation of the United States, number of buyers who made purchases on Thanksgiving day has fallen over the past three years, reaching 102 million in 2015 compared to 147 million in 2012. This is primarily obliged to the fact that the main reason lies in the growth of popularity of online purchases, primarily on Amazon. Such dynamics became a real test for retailers all across the country. Number of consumers in online stores increased by 4.2%, and simultaneously decreased by 3.7% in the offline sector.

The agency notes that this trend negatively affects retail trade. 19 companies on the agency's list have $ 3.7 billion of debt with maturity within the next five years, with about 30% of this amount due as early as next year.

It is worth noting that the leading retailers have already sacked 44,000 people since the beginning of 2016. The "classical" retail industry is coming to an end, says Challenger, Gray & Christmas. The agency’s analysts studied statistics of layoffs and the labor market as of July-August 2016, and predicted imminent collapse of the "classical" retail industry. The largest US retailers are inexorably reducing staff and number of their stores. Macy's, one of the leading retailers in the US, held large layoffs and closed 100 shopping centers in the country. Prior to it, major reductions occurred in JCPenney (JCP), Sears (SHLD) and Kohl's (KSS). At that, axing of "classical" retail, retail trade in stores and department stores is not directly related to the economic situation: analysts note growth of employment in services and IT, as well as generally stable figures for sales of consumer goods in the country.