Wednesday, July 10, 2019

First Retail, Now Restaurants

The sad state of US retail cannot be blamed on trade tensions, outsourcing or imports. It dates back to overexpansion in the 1980s. It seemed like any and every vacate intersection was game for development. Thus, we grew malls, regional shopping centers, basic shopping centers, strip-store shopping and factory outlets all over the nation.
The timing was perfect in the aspect that factory jobs were being outsourced and these opportunities offered employment, especially for people who were being displaced by the lost of their previous employer. A few years later, those same workers became disillusioned with their new employment. Wages were stagnant. There were no benefits, no pensions and little opportunity for advancement. The main reason nothing was done politically, was because the individual was disenfranchised. Even with the advent of the internet, we are still just one voice crying aloud, and in this case, crying in digital.
History Repeats
Although this multi-generation of workers got the short end of the stick by the wealthy producers in America who outsourced our labor, they had one thing in common that gave them hope - their homes. Home values would provide a nest egg in lieu of a pension and or, higher wages saved in bank accounts. There were also some token measures by some good Congress members with IRAs and 401s. Together, all these factors kept workers working in low paying jobs because they could see a decent retirement.
A New Crisis
The plan hit not just a pot-hole, but a road cave-in. Somewhere along the journey of life, the housing phenomena grew beyond belief. You know the old expression, "If it's too good to be true, it is!" Well, people began speculating with their homes. They saw and read where their neighbors sold and made overnight all that they could have saved over the years, if they had a better paying job. They heard tales of unemployed who took a beat-up, fixer-upper and now, they are on easy street. People took the plunge. They did not think that by selling their $50,000 home for $200,000, the ramifications of their choice. They purchased a $300,000 McMansion. Then, they flipped this showplace for a $400,000 no money down and no verification required speculation home. They did not stop to think about real financing. Everybody was doing it and banking was going along, so what's to worry?
Financing 101
Let's do a quick math application. To make a deeper impression, I am going to use the present, lower interest rates to calculation the basic financing requirement for a $400,000 super-home back in 2006.
You would need to make at minimum $1600 plus per week. Dear Reader, there is no need to tell you that retail in any form or level does not pay those type of numbers. By the way, that possible buyer had better have no car payments, credit card debt or other financial obligations like student debt. No one had those middle-class income numbers. Slowly, but surely, the flippers got flipped. The parade ended in the show rooms of new subdivisions. The party was over. Now, those speculators must come up with $2,000 plus every month to pay the mortgage. We all know what happened.
Enter Today
The Obama stimulus along with the Fed cutting interest rates to zero, spurred the business cycle to begin anew. The problem was to find a quality job that paid a living wage. This is still the problem. It is why the middle-class is shrinking. The tragedy of outsourcing is that America was hope for the world. We had the provided the highest opportunity for advancement - social mobility. Today, we are number 40 and SINKING! This is the wealth gap. It will be a sad day in America when we have only two classes: affluent and poor. This is the curse of European aristocratic thinking. It is killing the American dream.
Anyway, people are not dump. They could see where retail was going, especially with the advent of the internet and Amazon.  Restaurants on the other hand, were thriving. There were opportunities for advancement and tips along the way. People eat out as much as they love to shop. It became a job magnate.
Most restaurants went where the shoppers went: malls, shopping centers, etc. As those locations suffered due to loss of anchors like Sears, J. C. Penny, et al. those shopping districts became less desirable. Restaurants became collateral damage. This is part two to the growing Armageddon in retail. Part three would be the individual shops like a tailor, shoemaker, repairman, etc. Stats on those failures or successes are difficult to assemble, but they too are going by way of the Dodo Bird. I like the idea of small business Saturday. This concept is to support small business on the day after Black Friday. However, once a year is to little and probably too late.
Anyway, I see two other problems in what is taking place in the market. The first and foremost is the advantage of the internet over foot traffic. No sales tax. Congress better make up and give brick and mortar a equal playing field. The second is more subtle. The growing use of the I-phone to pay a purchase. Money is financial independence. We have been led by convenience of checking, credit and now, digital over a cash transaction. People, this is setting you up for a serious crisis. If the banks shut off your credit line, you are broke. Repeat that! You will have no financial freedom. You will be subject to state control. This is evil beyond comprehension.
Enough said. The collateral damage to restaurants is alarming. Here is a list that are on the same road as Radio Shack. There are other reasons for failure among the primary is overexpansion, menu change and changing demographic core customers. Some are not going out of business, but are declining in nature as competition is fierce.
*Fuddruckers - not closing, but severe sales decline.
*HomeTown Buffet - loss of customers by demographics.
*Ruby Tuesday - collateral damage in shopping area.
*Friendly's - changing demographics and competition.
*Tim Horton's - overexpansion from Canada.
*Papa John's - descension.
*Eat 'n Park - declining sales, competition.
*Quiznos - declining sales, demographics and competition.
*Carl's Jr. - declining sales, demographics and competition.
*Steak 'n Shake - demographics and competition.
*O' Charley's - declining sales, competition.
*Starbucks - Yes, the coffee chain is safe, but sales are falling rapidly and competition is growing.
*Polo Tropical - overexpansion.
*Pizza Rev - Kramer's idea - make your own. Sorry, Cosmo. This is a no go.
*IHOP - declining sales, demographics and menu change.
*Johnny Carino's - location.
*PDQ (People Dedicated to Quality) - overexpansion.
*Subway - menu and corporate pricing with franchises, declining sales, demographics.
*Papa Murphy's - variation of Kramer's idea with the same results - no go.
*Village Inn - demographics.
*Pie Five - overexpansion.
*Potbelly - same problem as Subway and declining sales.
*Luby's - location and declining sales.
*Applebee's - in transition, sales falling.
*Chipotle - health scare, repeatedly. Management, expansion and competition.

The list is long and keep in mind that these are chains which means you have to multiply the number of locations with the number of workers. Not Good!