First Big Retail Bankruptcy Validates Prediction About Retailpocalypse Due to Amazonification

We're interested in retail as a bellwether of our consumer-based economy. Or, more accurately these days, the canary in the coal mine. 

Last year we raised concerns about problems affecting the retail sector because there are a number of other parts of the economy that rely on retail, including real estate, newspaper and other local advertising, employment, and logistics. So when retail hit a downturn, there's a trickle-down affect.

We mentioned those issues and made it our top prediction for this year. We wrote about it further in a subsequent blog post: The Wall St. Journal Validates Our Prediction in a Column Entitled, "How Retailers Can Thrive in the Age of Amazon."

Today, Fortune reported that "Bon-Ton Stores Becomes Latest Retailer to March Into Bankruptcy Protection."  Here's the key sentence:

The Milwaukee-based retailer, whose chains include namesake stores as well as Carson’s, Elder-Beerman, Herberger’s and Younkers, has been struggling for years with declining sales amid challenged traffic at the malls it occupies, an assortment redundant with what rivals sell, and difficulty adapting to the emergence of e-commerce.

Those factors are exacerbated by Amazonification. And they will continue to impact other mall-based retailers in 2018 and beyond.

Interestingly, much of the coverage to date has focused on bankruptcy filings or impact on shares without taking a bigger perspective such as the impact of store closings. Bon-Ton had already announced it was shutting 40 stores but the chain has 260 stores overall, and with it, significant real estate leases and obligations. In fact, filing for bankruptcy makes it easier to break leases.

So what's not getting reported is the trickle-down nature of the suddenly unemployed retail staff, both on the sales floor and logistics, maintenance, and other services -- people who will face a hard time finding new jobs since few retailers are expanding -- as well as the impact on the malls themselves (because boarded up stores don't attract customers so it can start a downward spiral impact on the health of that particular mall location), and newspaper ad revenue (since those stores no longer need to advertise to bring in local customers).

 The reason this isn't getting covered is that, even in good times for retail, the sector is dynamic with new stores opening and other ones closing. But our concern is that we don't think there will be enough new stores to replace the ones that have closed. And even if Bon-Ton restructures its debt and gets out of Chapter 11 -- for now -- it still hasn't developed a strategy to address Amazonification.