Macro Insights: The Retail Real Estate Implosion: The Robotics Cometh!

 

The US just released US Retail Sales details warn of an alarming problem. 2008 may have been a crisis brought on by US Residential Real Estate, but 2014-2015 is likely to see the next wave triggered by US Retail Commercial Real Estate. The Fed, Banks, Insurance companies, REITS and most importantly, the Shadow Banking sector are well aware of the exposure and are preparing accordingly.

What is it they know?

1. ROBOTIC AUTOMATION is sweeping retail stores and with it less people and less square footage is being required,
2. ONLINE SHOPPING is now mainstream and the excess square footage of brick & mortar retail are a cost disadvantage as competitive discounting becomes paramount in a world of shrinking disposable incomes,
3. SHADOW BANKING financing which has silently morphed from 2008, now employs new instruments such as SFVs, CLOs, Rehypothecation and Collateral Transformations which have all the ear marks of 2008, with short duration funding problems. The troubling ABCP paper of 2008 has only been replaced with equally troubling Repo Collateral. There is a 'roll-over' problem on the horizon.
   
   THE BIGGER PICTURE - Margin Squeeze on Fixed Costs

JOBS versus SALES - More than Hiring for Christmas Sales

This graphic is based on the just published US Retail Sales numbers and is indicative of an "overstored" America.

The chart above — from Neil Dutta, head of U.S. economics at Renaissance Macro — does an excellent job of illustrating that recent retail sales data just don't square with recent jobs data.

"Something has to give. There is a widening disconnect. Either retailers stick with it and stay confident on the expectations that sales will improve, or they will be forced to cut employment dramatically."

But .... ITS MORE THAN JUST A "MALL" PROBLEM!

The rate of increase of Total Aggregate Demand is slowing and impacting all types of retail.

It is a Real Disposable Income problem!

There is a looming US Retail implosion on the horizon and a complete re-think of the foundation of a 70% US Consumption Economy is urgently required. For thirty years analysts have predicted the demise of the US consumer. They were so consistently wrong that the mantra "Don't Bet Against the US Consumer" became a staple of investor wisdom, similar in reliability to "Don't Fight the Fed!”  Both may have lived their useful like?

The US Consumer as the engine of global growth has powered global expansion and credit creation as a direct result of the growth in US deficits.

Now at 70% of the US economy, as compared to 50-55% for other developed economies, and less than 35% for emerging economies, the question is no longer a matter of is it sustainable but rather what will be the fallout now the inevitable has finally arrived?

It is clear the US consumer is tapped out a result of the US middle class being 'gutted' with job lose, low salaries, exploding healthcare & educations costs and pensions now an endangered species. However, our Monetary, Fiscal and Public Policies are only making matters worse.

The looming domino in the US Retail CRE (Commercial Real Estate) space due to the advancement of online and robotic technologies are both startling and alarming.

EXAMPLES OF EXPLODING RETAIL SERVICE AUTOMATION - Will reduce Employment and Square Footage

1. Store Replacements: Redbox Model
2. Instore Kiosks
3. Applebee's "Waiter Terminator"
4. Smoothies "Automated Dispensers"
5. McDonalds's "Smart Restaurant"
6. The "Brown Truck" Store

 

AN 'OVER-STORED' AMERICA

The Retail building boom in America has created yet another bubble - The Stealth Retail CRE Bubble.

SHADOW BANK FINANCING

The Shadow Banking system has 'morphed' since the 2008 financial crisis. Gordon T Long in the video below explains why Commercial Real Estate financing is presently seriously exposed to a crisis in short term funding disruptions, in a similar fashion to Residential Real Estate prior to the 2008 crisis. He shows the new instruments that are now being used and why they will be the new acronyms of the next financial crisis.

THE BOTTOM LINE

A potential US Recession could bring the whole US Retail CRE "House of Cards" down. Historically, it should now be a strong consideration, and we have signs of that possibility.

 

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Gordon T Long                        

Publisher & Editor

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that you are encouraged to confirm the facts on your own before making important investment commitments.

© Copyright 2013 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or suggestions you receive from him.