Davidowitz: Retailers in 'Survival Mode' as Headwinds Multiply

A recent report by Green Street Advisors says that American retailers such as Macy's, JC Penney and Sears, among several others, will have to close up shop on hundreds of stores to reach pre-2008 productivity levels. The report attributes this change of fortune to the growth of Amazon and online shopping, and also to a chronic drop in mall shopper traffic.

In a recent interview with Financial Sense, retail expert Howard Davidowitz called the widely-read report "absolutely crazy, because there’s no way those chains can return to their former numbers,” he said.

The massive store closings underway right now and the hundreds more to come, he noted, have nothing to do with returning to the boom years. Instead, Davidowitz asserts that retailers are thinking about one thing and one thing only: survival.

This isn't just about the success of Amazon and the growth of e-commerce. Davidowitz says retailers also built way too many stores during the boom times and that middle-class America no longer has the money to spend.

In America, there’s more retail space per person than any country on the planet, Davidowitz said.

“We’re over-stored,” he said. “But we’re not just over-stored in department stores. We’ve over-stored in everything. We’re over-stored in malls. Half of our malls will disappear in 20 years.”

It's a case of too much supply and not enough demand.

When it comes to the American consumer, Davidowitz asserted that “Most of the American people are poorer, and most of those people who fell into poverty came out of the middle class,” he said. Demand (and the relentless desire to consume) has taken a downshift in the aftermath of the last recession.

The consumer is 70 percent of our economy, Davidowitz said, and we’re experiencing 2 percent growth. He thinks we might be at 1.5 percent growth for the year, which will be horrendous.

“The answer is very basic,” he said. “Why is the fastest-growing retailer in America, Family Dollar...building thousands of stores? Why is Aldi Food, the cheapest food store, so popular? Because there are more and more people with less and less money.”

With the American middle class under tremendous pressure, people are shopping in cheaper venues, he said. Auto sales at 17 million have somewhat offset this, but Davidowitz said this is more of a function of need given the advanced age of most vehicles on the road today.

Though the decline in gas prices has helped American's pocketbooks, Davidowitz said most of that money is being gobbled up by increasing healthcare costs and insurance premiums. Ultimately, Davidowitz sees more headwinds facing the U.S. consumer, which means retailers are likely to face more pain ahead.

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