Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Toys R Us Teetering on the Brink of Collapse, UK Retail Sector Crisis Perfect Storm

Companies / Retail Sector Dec 19, 2017 - 05:55 PM GMT

By: Nadeem_Walayat

Companies

The British arm of Toys R Us has been teetering on the brink of collapse for several months now following it's american parent company filing for bankruptcy protection in September 2017 that triggered a downsizing programme through rapid store closures that are likely to see at least 200 of it's 866 US stores close in an attempt at reducing its $5 billion debt mountain which dates back to its leveraged buy out of 2005 that costs Toys R Us $400 billion a year in interest payments.

So it should not come as that much of a surprise that the British arm of Toys R Us with its 106 stores could now be heading for at least a similar fate if not a 'Woolworth's' moment, that could unfold rapidly, all within a matter of days that could see the retailer plunged into administration with the potential loss of 3200 jobs. The triggering factor for which is a £30 million black hole in its employees pension fund that the Government Pension Protection Fund is demanding a near immediate payment of £9 million into to cover 3 years worth of past pension contributions, against which the distressed retailer is offering just £1.6 million and thus the current crisis.


The key point is that the PPF would be forced to step in if the retailer went bust and the calculation being made is that if Toys R Us lingers on for another year before going bust then by that time the pension black hole could be twice the current estimated size.

However Toys R Us is just the tip of the retailer sector crisis that I have repeatedly been warning of ALL YEAR as I expected Britain's retail sector to face a perfect storm, perhaps several 'Woolworth's' moments that could see at least 1 major retailer go bust, and my warnings were not just focused on the the smaller players such as Toys R Us but right from the top, Britain's largest retailer TESCO downwards, most of which have increasingly been suffering all year.

Fundamentally, it is the same old story of giant bricks and mortars retailers being killed off by the internet, by the likes of Amazon and a myriad of other online only retailers that have sprung up over the past decade or so. Against which the bricks and mortar retailers just cannot compete in terms of price given their vastly differing overheads. And the basic flaw in Toys R Us is that the stores were JUST TOO BIG! Which is why they are suffering whilst smaller store retailers such as The Entertainer toy ship chain that continues to do well, for now at least.

And where for this years perfect storm we also had the persisting dynamics of soaring inflation as a consequence of the BrExit sterling plunge, which in the latest data remains stubbornly above 3% CPI. Therefore generating year long upwards pressure on shop prices as suppliers restocked at much worse exchange rates that already depressed retailers such as the big supermarkets had delayed fully implementing.

05 Mar 2017 - Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017

In June 2016 the people of Britain voted against the interests of the establishment political elite that have played pass the parcel amongst themselves at each general election for at least the past 40 years, who in treaty after treaty have been systematically selling the sovereignty of the British people to the emerging european union superstate primarily for personal gain.

Whilst the formal process for Britain leaving the European Union remains pending triggering of Article 50, which should occur by the end of this month. However, despite little so far having changed on the ground in Britain's relationship with the EU, there was one significant immediate reaction to the Brexit vote which was sterling's sharp 20% drop and which currently stands about 18% below its pre-brexit trading level

Retail Sector Impact

Therefore the retail sector is facing a perfect storm of rising prices, falling consumer disposable earnings and haemorrhaging customers to the discounters. All of which will culminate in increasing pressure on profit margins and balance sheets. Whilst it is still too early to imagine another woolworth's moment, i.e. a retail giant going bust, nevertheless there will be an impact which will at the very least translate into more job losses and probably the mothballing of many unprofitable stores, the closure of huge super markets, something that is unthinkable to most will likely become a reality so as to bolster profit margins by cutting costs by closing super markets that are no longer able to operate at a profit.

And then the retail sector had to contend with STAGFLATION, one of wage growth of just 1.8% persistently lagging behind the so official inflation rate of CPI 3.1% acting to squeeze the purchasing power of worker earnings. However in reality actual inflation is far higher with RPI at 4% and real demand adjusted inflation at 5.1% implying that the UK economy has been in deep stagflation for the whole of this year, one of the real terms erosion of the purchasing power of earnings, i.e. falling demand which increases the risks of a recession as the economy enters a depressed stagnant state where workers are not able to maintain consumption of goods and services resulting in economic depression with inflation i.e. stagflation.

In additional to my many articles, my following videos further illustrate the unfolding retail sector crisis of 2017 that I warned threatened to claim at least 1 major retailer in a 'woothworths' moment.

Global Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017

Tesco Crisis - Stock Price 60% Collapse, Next WoolWorth's?

Whilst my most recent video in the retail sector crisis series took a look at the prospects for Britain's third largest retailer, Asda.

Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017

In terms of shoppers, well if Toys R Us does go bust then one can expect deep discounts in individual store closing down sales as and when they are announced, in fact there ARE going to be closing down sales no matter what happens in respect of the pension fund, it's just a question of how quickly and how many stores, i.e. at least 1/3rd of Toys R Us stores were likely to close anyway! Though shoppers should remember to act fast on store closure announcements as most of the stock will go fast.

Whilst retail investors have had a lucky escape because Toys R Us has toyed with an IPO several times over the past few years, with 2017 having been seen as the year to float that may still materialise in some form, perhaps an asia only stores float without the debt burden could convince institutional investors to play.

The bottom line is that Toys R Us is just the tip of the ice-berg of what I expect to follow during early 2018, as the failure of retailers to perform during November and December 2017 will put many into severe distress during January and February 2018 as the retail sector crisis continues to unfold.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2017 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in