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There is much more happening in the rapidly rupturing  retailing industry than a collapse in US shopping mall traffic, the decline of the "Department Store" model and a shift to online buying. We have targeted collapsing retailers for over 2 years as an allocation within our investment portfolio. Over two years ago Charles Hugh Smith and I did a number of research videos ( 02 03 14 - THE RETAIL CRE DOMINO, 11 30 13 - LOOMING US RETAIL IMPLOSION: An Urgent Re-Think Required! ) outlining the alarming changes in US retailing  and though I have also written extensively on the subject I was shocked at a recent trip to an established  major New England mall.

In case you haven't been to your local mall lately you need to make the trip to see how rapidly America is adjusting to a 'gutted out' middle class and a 'tapped out' US consumer. This may be nothing new to many followers but there are definitely hidden trends which aren't be identified that offer significant opportunities for investors.


Let me take you on my recent trip to the mall so you can see for yourself. Though I can't discuss the biggest potential opportunity we have found and the reason for the field trips we have been conducting (it is restricted to our MATASII subscribers SII online section), I do challenge you to see if you can spot  it as I take you through the mall.


Unless you have been living under a rock you know shopping mall traffic is down significantly, but even for us it came as a shock to witness first hand the degree.

Mall traffic has simply gone over a cliff in the last 12-18 months. My field trip to this mall was on a mild winter Saturday afternoon when shopping malls have traditionally been the busiest, with people often simply looking for something to do. Thus is no longer the case.

Traffic has become almost non-existent.   It is not a matter of smaller traffic, but rather NO traffic.


If it wasn't for the fact that Macy's was conducting a 40-60% "going out of business sale",  I wonder if I wouldn't have been the only person there other than for a few exceptions which I will show you later!!

I was confused to see that even with the 40-60% Macy discounts, it still wasn't sufficient to attract crowds.  My wife wily suggested that most astute shoppers were waiting for the expected even deeper discounts, though the "pickings" would be somewhat marginally less by then. I couldn't argue with her knowing understanding of a familiar situation.

This mall, the most recent in our area, has drawn me over the years primarily because of the extensive craftsman tool section at Sears. Though Sears is still open with no announced plans for closing, it was a sorry skeleton of its former self with few sales attendants, many empty shelves, consolidated areas and even lights turned down in many low activity areas to clearly save power costs.

My familiar tool section was still there but two very bored sales attendants and myself were the only ones there. It appears having sold the Craftsman brand to Black & Decker, smarter buyers have found better pricing somewhere else. It suggested to me as I was leaving that  I needed to explore Black & Decker's distribution alternatives more closely before buying my next needed tool.

It comes has no surprise that the major US mall anchor stores like JC Penny, Macy's, Sears etc are in trouble but was abundantly evident is that the Department store model itself is no longer valid and certainly not the draw required to garner the traffic needed to support all the other stores living off  the expected and required mall  traffic. Fundamental distribution models are being shattered.

When you read that Cowen & Co. is reporting that they expect to replace Macy's Inc. as the No. 1 apparel retailer by next year it is quite obvious the degree to which the change has already happened.


I approximated that well over 1/3 of the stores in this mainstay area mall were already shuttered. There are no rumors of it being closed but anyone could immediately see it was no longer viable. You wondered who owned it, who was invested in ti and if they truly understood what their investment was worth. When you appreciate that these malls are owned through complex secularization products by Insurance companies, pensions, trusts, endowments etc, I could n't help but be reminded of the 2008 financial crisis and the lessons people learned about mysterious instruments such as CDS's and CDO's . Do thjey understand today's Leverage Loans, CLO's and Synthetic CLO's? Also do they fully understand how money managers are only OPM (Other People's Money) Managers are everything to them is nothing more than digits on their computer displays. Maybe they need to get out from behind their monitors?

By the way, that 1/3 assessment number of closed stores didn't include many stores which had their gates down with no staff in attendance.  They were apparently just not open. Closed on a Saturday afternoon?

I did see one open up while I was walking around as it only worked from 2:00 - 6:00 PM. It appears you now need to check individual store hours in advance of actually coming to the mall. Who would have guessed?

Though this was a field trip to an established Shopping Mall,  statistics show that Big Box store sales are also having problems. My local"big box" haunts such as Borders, Sports Authority, and Circuit City have all already closed as well as my Radio Shack in a nearby nearly vacant strip mall.

There is more going on here than simply a shift to online.


I also noticed that stores were adjusting their retailing efforts.  Specifically, I saw Jewelers mutating to becoming gold brokers as you can see here in the newly added sign hanging in the entrance.

The last time I was in this mall there were 15-20 Kiosks as shown on the right selling everything from telephones, to calling cards to T-Shirts. Though every Kiosk was now empty and for rent, I recognized some of them as the now the occupants of some of the smaller floor space stores.

Though the mall restaurants were all bare, the food court was somewhat active but with more robotic kiosks than I have seen before. If malls in america employ actually employ the 15.7M people  reported, than I suggest President Trump had better deliver on his 25M jobs in 10 years and the 2.5M/year rate needs to be front end loaded!


I was dismayed to see that one of the former anchor stores had been turned into what I can only describe as a modern day, indoor "carnival midway".  I have seen many arcades but this was an arcade "cubed", with everything from Billiard Tables to Karaoke,  from Ping Pong to every Multi-million dollar video game stations. Many of the areas reminded me of a Las Vegas casino without the traffic

Even here the traffic was mild and though clearly a destination center for bored youth - though I wondered how they could affords the costs of each game? It seemed like a good idea on paper, chasing a market that wasn't there or had the money to could actually  afford it in any sustained fashion. Somewhat like as a kid our family could only afford it once a year - maybe.


Something that also caught my attention was how the local Community College and other training institutions were taking over the empty mall spaces.  The empty stores appeared to be ideal for classrooms, plenty of easy parking, a food court (I suspected that was what was supporting the food court), security and very quiet. The mall was certainly quiet!


Some of my conclusions were is that what we have is:

  1. The decline of the "Department Store" model and its ability to draw traffic,
  2. The collapse of the US shopping mall concept as a consequence of the defunct department store model as well as other factors,
  3. A shift to online buying which we need to appreciate has now reached  the important critical mass stage in America,
  4. Collateral damage because of the falling mall traffic, which is impacting Restaurants and other retail chains dependent on the historic Mall Model,
  5. Upscale appears to be out as a dominant theme - Discount, Consignment and "Dollar" stores are now the norm and as of yet are not in the malls,

... but, there is much more going on here. These are effects - not the cause.


Personal Income has been falling in America for years, and this is in nominal terms - not inflation adjusted

When we consider Consumer Credit as a percentage of Disposable Income versus Annual Retail Sales, we see that though debt is surging it can only buy the same amount of stuff, but not more.

Lending standards are tightening while there is less credit card demand. None Credit card debt items like education, auto and rent are consuming more of households real disposable income.


There is recent evidence that consumers may be surprisingly finally be trying  desperately to save.

It may be because they are on the verge personal bankruptcy, job elimination or have become frightened!  The sudden surge in consumer confidence since the Trump election may be more about possible relief and blind hope that something may change?

To me it was only a matter of time before America discovered that a 70% consumption economy is unsustainable!

Especially, when you have been consuming more than you produce for decades!