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The next big bubble is ready to pop: what happened to the retail industry

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First the housing market crashed in 2008, now the next big bubble is ready to pop, and it already has begun. The retail bubble is becoming an ever-increasing concern for the United States. Retail businesses across the country are failing to repay their debt, causing both small and large companies to pack up shop.

There are a few factors that have led to the retail bubble and are responsible for its eventual collapse. These factors together will cause a lot retail stores to close branches or file for bankruptcy and will in turn cause a lot of people to lose their jobs. Already in 2017, 2,280 stores have closed, and Credit Suisse projects that up to 8,640 could close before the year ends.

One of the reasons there is a growing retail bubble, ready to pop, is the massive increase in online shopping. With online shopping sites, like Amazon.com, online shopping is easier and more convenient than ever. Customers have embraced being able to shop from the comfort of their own homes.

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According to a study done in 2015 by Pew Research Center, 8 in 10 Americans shop online. You can only imagine how that number has increased over the past two years. With the majority of Americans shopping online, physical retail stores have been losing profits. If you think that online shopping is only hurting smaller stores, you’re wrong. Macy’s, J.C Penny, and Kmart are just a few of the many stores closing branches across the country.

The amount of customers shopping online is already a large enough problem on its own for retail businesses, but what makes matters worse is that earlier in the 2000’s, large retail companies increased the number of their stores nationwide.

Similar to the housing situation, banks were lenient with their commercial real estate lending. This allowed both larger and smaller companies to take out loans for storefronts. So many companies were able to get approval for loans that the amount of retail space grew rapidly. So much so that the United States now has several times as much retail space per capita than Europe or Japan, according to Urban Outfitters CEO, Richard Hayne.

Many stores were able to grow and increase profits in the early 2000’s thanks to the loans they were given by the banks. They hired more employees, had more product to be sold, and increased not only the number of storefronts, but the size of those storefronts as well.

Now though, in 2017, with online shopping at an all time high, these stores are losing money and struggling to pay back the banks. Just like the housing crash in 2008, the number of stores failing to pay their loans back is large. Less people visit the stores in person, which means these stores have an excess of product, and the only way to try and sell it is to lower prices.

Some of the stores that will be closing locations this year include: J.C Penny (128), Sears (41), Kmart (109), The Limited (all). These are only a few examples of stores that are facing massive closures or bankruptcy. Storess will continue to struggle with coming up with the sales needed to pay back their loans to banks because of customers’ heavy reliance on online shopping. Sooner or later the retail bubble will reach a point where won’t be able to sustain any longer. And then, pop.

Dan Calabrese

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