What NCR just Said about the American Retail Quagmire

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When NCR announced its preliminary and disappointing third quarter results today, it lowered its guidance for the rest of 2014. Its stock got knocked into a breathtaking 21% plunge. While at it, NCR revealed to just what extent brick-and-mortar retailers were sinking into a quagmire.

The maker of, among other things, point-of-sale devices for the retail industry should know: It is, as it says, “the global leader in consumer transaction technologies.”

It blamed “global macroeconomic conditions” such as “foreign currency headwinds.” The dollar had surged recently to regain some of the value it had lost before – very unwelcome news for Corporate America. And NCR blamed particularly the “challenging retail market” for its debacle. CEO Bill Nuti explained it this way:

Market conditions within the retail industry worsened in the third quarter, as evidenced by weak same store sales comparisons and financial results. This resulted in our retail customers spending more cautiously than anticipated and further delaying solution rollouts. Contributing further are ongoing data security concerns, which were heightened in the third quarter. This is causing retailers to shift IT priorities, resources, and capital spending. Additionally, ongoing retail consolidation continues to be a factor impacting our performance.

So, while NCR will “continue to be faced with challenging and uncertain market dynamics,” it remains, obviously, “confident in the actions we are taking to address these challenges, including strengthening our Retail Solutions team and talent….”

NCR, a thermometer into the retail industry beyond the latest sales statistics, has noticed that brick-and-mortar retailers are cutting back. And they’re not just cutting back buying point-of-sale devices; they’re cutting back, period. “Ongoing retail consolidation,” Nuti called it. And some are using bankruptcy courts to do it.

These structural problems in the brick-and-mortar retail industry include Sears Holding with its moribund Sears and Kmart stores. They excel only in two things: shrinking sales and losing money. This year, the company promised to close 300 Sears stores and 80 Kmart stores. Some of us wonder why anyone is still buying there.

A week ago, discount retailer Alco, with 198 stores in 23 states, filed for Chapter 11 bankruptcy protection. In September, after never-ending and wild speculations that electronics retailer Radio Shack might also head into bankruptcy, the company suddenly supported these wild speculations in an SEC filing:

Given our negative cash flows from operations and in order to meet our expected cash needs for the next twelve months and over the longer term, we will be required to obtain additional liquidity sources, consolidate our store base and possibly restructure our debt and other obligations. We are exploring alternatives…. Alternatives include the sale of the company, partnership through a recapitalization and investment agreement, as well as both in and out-of-court restructuring.

That “in-court restructuring” would be bankruptcy and could entail outright liquidation. It would be the end of that story. The stock trades as a penny stock. If the store down the street disappears, I’d regret it. It’s convenient. I buy my doodads there, like that cable a few years ago that allowed me to plug my laptop into my old and powerful stereo system with its big analog speakers and wonderful sound. Things like that. I rarely spend more than five bucks there. But it’s apparently hard to make a living that way.

Sears, Kmart, Alco, and Radio Shack aren’t exceptions. Retail chains, large and small, have announced a veritable epidemic of store closings in 2014. Here are the “Top 20” announcements of store closings. For these 20 chains, the total number of stores to be closed exceeds 4,200!

US-announced-retail-store-closings-2014

Store closings add up after a while. This process has been going on for years. It’s tough out there.

Mega-retailer Walmart has seen nearly stagnating profits over the past three years as sales growth barely beat inflation. Sure, some brick-and-mortar retail chains are thriving, but many others are languishing, and some are on the way out. As a side note: when all this washes out, who is going to fill the vacant retail space in our malls? That’s one of the many secondary effects of the troubles in the American retail industry.

There are bright spots, however. Online retail continues to grow, though undisputed king of the hill Amazon continues to lose money. Turns out, it’s easier to grow a business if making money is not part of the plan, as long as you keep getting new money to lose [read…. But Wait, There Are A Few Differences Between Amazon and the US Postal Service].

And auto sales have been booming, whipped into frenzy by cheap money, long financing terms, a focus on subprime customers, and such loosey-goosey underwriting standards that even regulators have started fretting about it. They’re worried about the risks to the banks. But when this auto-loan doozie pops, it will hit sales, production, services, railroads…. It won’t go away quietly. Read…. Debris from Subprime Auto Loans to Ricochet across Main Street

As for the rest of retail, it’s a slog. American consumers are stressed. Inflation has been eating into their incomes, and they have to curtail their spending, or make up the difference with borrowed money. Savers have seen their incomes from their $9.5 trillion in bank accounts, CDs, and money market funds whittled down to nearly nothing, and they too had to tighten their belts. These are the designated losers of monetary policy. There are a lot of them. And it’s hurting the real economy. Read… More QE? These Charts Show the Pauperization of Workers in the UK and America since 2008

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  18 comments for “What NCR just Said about the American Retail Quagmire

  1. Louis
    Oct 20, 2014 at 12:40 pm

    Looking through the list of closings, I have to say that many of them don’t come as much of a surprise—nearly all of them are in either oversaturated markets (e.g. Office Max) or in areas that are antiquated (e.g. Radio Shack, Blockbuster).

    I’ve been wondering for awhile how stores like Sears and Kmart stay afloat—a good portion of what they sell can be bought online without having to ever set foot in a terrestrial store. The situation is for bookstores—Borders went under now it may be Barne’s and Noble’s turn. However, I do believe there will be a niche market for indie bookstores, especially in major cities (e.g. San Francisco’s City Lights, Denver’s Tattered Cover) for the foreseeable future.

    • lG
      Oct 20, 2014 at 4:03 pm

      Louis, did you cross your mind how many jobs these closings effect?

      • BillBillBillBill
        Oct 21, 2014 at 10:29 am

        Good point, LG.

        I personally try to avoid buying things online. I even avoid self-serve checkout counters at supermarkets and other stores, preferring to be checked-out by a human cashier.

        I do these things in the interest of saving jobs and in the interest of preserving the real-life shopping experience, which I believe is an important part of being human.

        And Louis should remember: those jobs that are lost to technology today, will be your job tomorrow. No one’s profession is immune from being replaced by technology, and faster than anyone would suppose.

        And the fact that a machine can’t do your job as well as you can, will not stop the process: if a machine can do it cheaply enough, you will be replaced Think how people answering the phones of businesses have been replaced by computerized voice menus, and how much better a human can do the job of directing your call.

        It doesn’t have to do it better, just more cheaply and your career is gone.

  2. Petunia
    Oct 20, 2014 at 12:58 pm

    I recently read that the back to school sales were a disappointment. I knew that was going to be the case because in mid August I was in a Goodwill thrift store and half of the customers looked like middle class housewives. I guess we are all formally middle class now.

    • RDE
      Oct 20, 2014 at 7:50 pm

      Petunia, “we are all middle class now” is a gross mis-statement. “We are all unemployed under class now” is more accurate. The middle class that was the backbone of the country in the 1970’s has ceased to exist and been replaced by a majority sold into debt slavery.

      Don’t believe me?

      The best measure of economic security is ownership of wealth. and the former middle class in the US has sunk to 27th in the world as all the wealth that the society generates flows into the pockets of a tiny elite and taxes support an Imperial Military instead of public infrastructure.

      Median wealth :
      #27—USA— $38,786
      —- hardly enough to pay for a minor operation in a US hospital.
      #1– Australia— $193,653
      #4– Italy–$123,710
      —-a country that Americans look down upon as an economic basket case populated by wine drinkers more concerned with spending afternoons with their mistress than getting ahead.

      America the Exceptional— Love it or Leave It.

      • Daniele
        Oct 21, 2014 at 5:52 am

        Well, here in the country of wine drinkers the middle class isn’t that well either. The figure of $123,000 per capita of wealth is mostly due to the fact that people in the past have been very careful with debt (unfortunately we can’t say the same about our foolish governement). Families took the risk of credit only to buy the house where they lived, but apart from that they generally were very savy and unemployment in the past was not a huge problem like today. Most families in Italy own their house today and this, I suppose is where the $120k figure comes from. In the early 2000’s a new spending trend set foot in Italy: “buy everything now and pay when you want”. In 2014 the middle class here is much impoverished than it was 15 years ago. And if that wasn’t enough since our government isn’t really capable of cutting down expenses and lowering taxes, we had many industries that moved in Asia, we lost jobs. With a lower base we have seen a gradual lift in taxes, and at the time when Italy was having trouble refinancing it’s debt our government introduced taxes on proprieties and bank accountings, so, we, the savy Italians are paying heavy for our government failures, we have actually a 22% VAT, a 37% minimum revenue tax, 75% taxes on oil products… I have calculated that in my case I pay more or less 67% in taxes. No we are not in a rosy situation here, but as an entrepeneur I know many businessmen, people here are eager to start something new, but can’t because we are crushed by our country’s debt, if finally we could have somebody with a brain in our government this country would bloom again. Yes we drink a glass of wine at dinner, but still we are surviving in those hard times and we are ready to start anew

        • Oct 21, 2014 at 7:40 am

          Daniele, thanks for your excellent boots-on-the-ground point of view on Italy. I posted your comment on the front page so that more people get a chance to read it.

        • RDE
          Oct 21, 2014 at 6:56 pm

          Hi Daniele,
          Didn’t mean to imply that things are all rosy on the outer rings of EuroLand. However the contrast in middle class wealth between countries like Italy and OZ and the US is striking. If you are that person exactly in the middle of the Italian economic spectrum you pay far less for medical care and have more public services and economic safety net at your disposal. If you have a major illness you will not automatically be forced into bankruptcy as is often the case in the US.
          Since you have over 120k in net assets you have alternatives not available to the US citizen living from paycheck to paycheck with a debt burden many times their annual income. And you have vacations– something that is but a vague memory in the US.

          The high taxes you pay may seem to disappear into the gaping maw of bureaucracy, but they do not go to support an Imperial Empire that engages in endless warfare and controls over 80% of the world trade in weapons of death. You will not have to engage in self-deception about where your tax dollars are going to just to get up in the morning.

  3. Oct 20, 2014 at 4:33 pm

    “As for the rest of retail, it’s a slog. American consumers are stressed. Inflation has been eating into their incomes, and they have to curtail their spending, or make up the difference with borrowed money. Savers have seen their incomes from their $9.5 trillion in bank accounts, CDs, and money market funds whittled down to nearly nothing, and they too had to tighten their belts and curtail their spending.”

    This is why oil prices are collapsing X all the other countries in the world … everyone is broke.

  4. NotSoSure
    Oct 20, 2014 at 6:59 pm

    The market will rally again for sure with great news like this.

  5. VegasBob
    Oct 20, 2014 at 9:42 pm

    Even a high-end retail chain like Nordstrom’s is closing “underperforming” stores.

    Here in the Pacific Northwest, Nordstrom’s is closing its store at the Lloyd Center in Northeast Portland, Oregon, and it’s also closing its store at the Westfield Mall in Vancouver, WA, just across the Columbia River from Portland.

    The financial engineers in corporate HQs across the country are running out of tricks to make their earnings look good, and the Federal Reserve program to conjure up trillion$ in counterfeit electronic money to “buy bonds” is ending.

    We may be on the cusp of seeing even more financial distress than we did in 2008-2009.

  6. Mark Harry
    Oct 20, 2014 at 10:37 pm

    Wolf can you delete this, sometimes I twitch and click the mouse when I shouldn’t.

    • Oct 20, 2014 at 10:43 pm

      Sure, Mark…. Done. No problem.

  7. Mark Harry
    Oct 20, 2014 at 10:46 pm

    I was in Sears today buying vacuum bags, Kenmore still makes the best. They are doomed, they rearranged everything, a service person offered to scan and complete my order with a tablet in the aisle. Oh, it’s a debit card, we have to go to a register. He stumbled with getting the sale from the tablet to the register, when it finally appeared on the register it took another 2 minutes for it to accept the debit card. The good news is apparently they lease TV’s now, doomed.

    • laura m.
      Oct 23, 2014 at 2:55 pm

      Louis: Sears is stuck in the ’60’s with many stores not remodeled in fifty years, except newer stores in malls. Isles are crammed with stuff, you can hardly squeeze thru the place. Our Sears is closing here in several months. BillBill: We save money shopping ebay for various items. Running around town is time consuming and people are sick of high sales tax. Much is free shipping. We are retirees and fed up with low interest rates on CD’s and savings accts. We only shop sales/clearance. Grocery bogos incl.

  8. marmico
    Oct 21, 2014 at 7:39 am

    Shouldn’t you be looking at net store closings? There is churn. Stores open and stores close. From the same source, consider Store Openings. For instance, Dollar General, Family Dollar and Dollar Tree combined planned to open ~1500 stores in 2014.

  9. debt serf
    Oct 21, 2014 at 6:57 pm

    Personally, I don’t really find the store closures all that shocking or disconcerting. The american retail market has been over-saturated for long time. Many of the ‘retail’ stores out there are of dubious value in the market place anyways. The office depot/staples closures are of no surprise. never before in history of the world has there existed so many office supply stores with overpriced paper goods for sale. Gamestop is not surprising either as I can download most of my video games online these days. So many of these stores expanded simply for the sake of expanding, using debt and leverage, for the sole purpose of the owners and management to extract as much money as possible as quickly as possible before the company crashed and burned. And Sears? The store without an identity. There’s not much of a reason to even go there anymore. My back of the envelope calculations show that 1/4 of all retail stores could close and it would have little effect on the economy except to raise the YOY sales of existing stores.

  10. daniel lee morgan
    Oct 23, 2014 at 10:50 am

    I’m sure there is a correlation between real numbers of unemployed and spending! People who used to have paying jobs, that went to china, don’t have the money to spend on , on the products that are now made in china! All thanks to our wonderfully corrupt politicians, who are bought off by the chinese government opperatives they all work for the government over there ( along with alot of our so called leaders) ,or american corporations who could give a rats ass about America, as long as they make profits. If it’s at our expense, so be it!!! But., not to worry , there is all that welfare , to help you…. starve at a slower rate, until there is no more people left working to pay taxes! That’s when it will get real bad, for us, and the rest of the retailers still left! P.S. Remember welfare stimulates the economy !!!

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