Wednesday, May 17, 2017

Internet Tax and the New Black Tuesday

"Hurry! Hurry! Close-out specials! It all must go. First come, first serve. Items reduced 90%!"

No, this isn't an info-commercial. You are not dozing off while watching late night television. This is the future and it is coming to your mall. Another quarterly earnings report and another disappointing bottom line for retail. Wall St. picks up on these things faster than the public and they are dumping or shorting the category. The consumer however, will pick the bones. They will realize and see the signs(closing stores) of a shopping center that is under duress. They will hold off on purchases(disinflation)waiting like vultures for the kill. They will be able to pick up fabulous deals on Black Tuesday, but when Christmas comes, you will realize the real price of that once in a lifetime bargain. There might not be any place to shop where you can touch and compare what you can see. Don't bother to blame Amazon or other online services. You could blame the politicians due to their lack of foresight in allowing the internet to go tax free, but that won't last. Internet taxes are coming and although they may start small, just like the income tax, it will expand. How could we lose so many shopping centers? How could our government leaders not see the consequence of this loophole? It started with the new bankruptcy law in 2005 and the recession of 2008 hit it like a hurricane.
realized that their tenants were in trouble with the recession of 2008. They attempted to get ahead of the problem. So, as lease terms were ending, they offered concessions to keep their malls and shopping centers fully occupied. The problem for both the stores and landlords was the consumer realized that they could buy the same items online and tax free. In addition, online dealers could offer low prices due to the aspect that they had lower overhead costs that brick and mortar could not get around. Then, some older locations needed a makeover. In seeking money that banks were not providing, equity firms saw potential back in 2009. With the stimulus, retailers would get a boost due to the economy picking up. These firms answered the retailers call. Retailers took deals that they used to get consumers like interest free loans and creative financing which added balloon notes. No one saw that consumers seeking to escape inflation and getting more comfortable with free online shipping, might not return.
Money Due!
The lawyers will get rich as the equity loans are coming due and if the terms get extended, the interest free part won't be granted. As it stands now, retailers cannot meet their expenses, let alone a new additional cost of interest, so decisions must be made. The lawyer is on the phone and he wants his money for his client. The bankruptcy law of 2005 changed the time allowed to declare a store closing from 18 months to 210 days. This is why 19 national chain stores are announcing store closings and why they will happen this year and even more next year. Firms like Payless, the Limited, and Wet Seal are examples of equity loan financing. It was revealed in many court files that half of all retail bankruptcies had high leverage loans.
Long Shadow...
will be cast over the future outlook for malls and shopping centers. When you max out your credit options, the piper begins its song. The retailers attempted a debt strategy and it looks like it is going to fail. It is the same one that central banks use by debasing our currency and stealing our money with inflation. Anyway, many malls and shopping centers are facing a slow death as each nail, banging into a board across a door, announces another closing. Who wants to shop in a location where store after store is closed and the expression, "mall rat" takes on a whole new meaning.