The retail apocalypse is getting worse.
Store closures are hitting record highs, and now the trade war with China is threatening to trigger an avalanche of 12,000 additional closings that could send shockwaves throughout the entire industry, according to research from UBS.
“What we’re seeing right now is already bigger than anything we’ve seen over the last 20 years,” UBS analyst Jay Sole said in an interview with Business Insider, referring to the number of store closures announced in the first quarter of the year. “Retail is under a lot more pressure than people realize.”
So far in 2019, retailers have announced more than 7,000 store closures, which is higher than the number of closings from all of last year. Among the retailers closing hundreds of stores this year are Dressbarn, Payless ShoeSource, Gymboree, Family Dollar, and Charlotte Russe.
Softlines brick-and-mortar department stores and specialty retailers, in particular, are feeling acute pressure from higher minimum wages, the rise of e-commerce, soaring shipping costs, and heavy discounting, among other factors.
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“Even though the economy is strong, the unemployment rate is close to a 50-year low, and income growth is up, when it comes to discretionary categories like apparel and footwear, the consumer is not feeling that great,” Sole said.
It’s not all doom and gloom in the retail industry, however. The discount chain TJ Maxx, for example, reported stronger-than-expected first-quarter earnings this week and boosted its full-year profit outlook.
But retailers are now facing the added pressure of potentially higher tariffs on Chinese imports, which could hurt even healthy retailers.
President Donald Trump recently increased US tariffs on $200 billion in Chinese goods from 10% to 25%, and he has threatened to add a 25% tariff to all remaining Chinese imports, which would include apparel and footwear.
An added 25% to all remaining goods imported from China would trigger a wave of about 12,000 additional store closures, on top of the already record-high rate of closures this year, according to UBS.
This number of store closings in such a short period of time would result in excess inventory flooding the market, extreme discounting, and mass job losses that could cripple the retail industry in the short term, Sole said.
“If store closures happen slowly, the retail landscape could absorb it without too much struggle,” Sole said. “But if we see this big jump in the store closures, that creates a lot of disruption that hurts everybody.”