Next week, we're expecting to heat about Payless Shoes Stores filing for bankruptcy. We just heard that Sears is on its last leg. In the last year, Target has lost a third of their stock value. Last year, we had John Hancock Fabrics, Sports Authority, Sports Chalet, and Aeropostale file for bankruptcy. While Macy's, Walmart, JCPenney, Kmart and Sears all closed stores last year. We keep hearing about how Amazon is the reason for all these closures, but, in reality only 9% of all retail sales are made online.
So, what is the real reason for all these issues happening to retail? Aging. The people who have all the money (baby boomers) are getting older. As they are getting older, their views of money and what to purchase change.
--- (Related on ThinkAdvisor: Vanguard: Boomer Retiree Wave Won’t Crash Market)
Have you seen a baby boomer go to the mall recently to buy the latest pair of Jordan’s or make sure they have the hot new pair of jeans? You haven’t. As we get older, our view of what is important changes. It is not about being the person with newest or flyest stuff, but about looking nice and presentable. Mature consumers decide that it’s OK to wear that nice black dress twice. Their priority is making sure their money can last forever.
Baby boomers don’t spend money, unless it’s on cruises and health care. Besides that, they don’t spend money, and most are okay with that. They may cook one meal and eat leftovers for the week. They aren’t worried about the small things; they view the bigger picture and are worried about making sure their money will last them for the rest of their lives.
Since this group has all the money in world but is not consuming it, this puts a major damper on economy. Do you realize that our economy since the Great Depression — I mean, Great Recession — is growing at half the pace it was before the recession? It has never bounced back. What is crazy about it is most baby boomers haven't even reached the age of 65 years old yet. The peak of the baby boomers turning 65 will happen in 2020, which means we will see more havoc in the retail space.
If all of these retail companies are filing for bankruptcy, which leaves many strip malls and such empty, how are commercial real estate companies going to pay their bills? They are not. Which means they will have to follow suit and file for bankruptcy as well. This leaves cities lacking in revenue, because they will not have sales tax and property tax revenues. Which is going to put a major damper on cities. One big ripple effect.
If cities are lacking revenue from commercial retail property tax and sales tax, where are they going to get their money? TAXESSS!!!! Who are going to pay those taxes? Property owners and high income earners. You say, why them??? One is because property owners cannot abruptly leave in the middle of the night like renters. So, cities know they can get the revenue from property owners. The other source of revenue is high-income city residents. Cities will find every conceivable way to tax you. New taxes for grocery bags, driving on the road, parking, going to the city park, mailing a bill, and paying a bill online, and these are just a few.
So, enough with the bad news. I always like to give some positive ideas and strategies. If these properties do go bankrupt, will the properties go on sale? Yes! Is that a great opportunity to buy regardless of whether you maintain it or rent it out? Yes!!! If we know taxes will go up, should we put together strategies to avoid them? Yes!!!! So, it’s important that we plan today, before things get crazy.
Yes, retail is dying, but it’s not from Amazon. It’s from aging.
--- Read 'A Financial Katrina' on ThinkAdvisor.