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Retail is experiencing ‘a perfect storm,’ analyst says

Via CNBC :

  • Retailers are leveraged up when they need financial flexibility.
  • Retail is undergoing — absolutely — a secular change.
  • Despite the struggle facing brick-and-mortar retailers, the retail sector as a whole is actually growing, largely thanks to e-commerce.

Traditional brick-and-mortar retailers are experiencing a “perfect storm,” a Moody’s analyst told CNBC on Friday.

“You’ve got retailers out there that leveraged up … at a time when retailers need as much financial flexibility as they can get to be able to transition online,” Charles O’Shea, lead retail analyst at Moody’s, said in an interview with “Power Lunch.”

“If you can’t make that online transition, you’re going to end up where we’re seeing a lot of retailers today — with competitive positions that are weakening, some acute liquidity problems and it ends up being a perfect storm,” he added.

In February, Moody’s rated 19 U.S. retailers as distressed, including Claire’s Stores, Sears, Gymboree, Nine West, Toms Shoes, David’s Bridal and Payless ShoeSource.

The firm has since added another name to the list — Neiman Marcus. Of the more than $3.7 billion in debt that these retailers have maturing in the next half decade, about 30 percent of it is due in 2018.

One of the companies on the list, Payless ShoeSource, already filed for Chapter 11 bankruptcy on Tuesday.

Despite the struggle facing brick-and-mortar entities, the retail sector as a whole is growing, largely thanks to e-commerce.

“Retail is undergoing — absolutely — a secular change, it’s fundamental dislocation and people are shopping differently. But we have to start with the point that retail actually is growing. Retail is up 4 percent,” said former Saks CEO Steve Sadove, now founding partner of JW Levin Management Partners.

“The consumer is buying, they are just buying differently. Internet sales were up 25 percent last month. So, the consumer is thinking differently, they’re buying differently,” he told “Power Lunch.”

U.S. jobs data disappointed on Friday, with nonfarm payrolls growing only by 98,000 in March versus expectations of 180,000. Retailers cut 30,000 jobs in March, bringing the cumulative total jobs lost since January to more than 60,000.

“Retail is bleeding jobs, 30,000 today. If we have a border adjustment tax, that’s a job killer for retail,” Sadove said.

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