# The Retail Apocalypse is going to get worse before it gets better **URL:** \ **Category:** In My Humble Opinion\ **Created:** [March 24, 2018, 9:57pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133 "2018-03-24T21:57:52Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [March 24, 2018, 9:57pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/1 "2018-03-24T21:57:52Z")
I’ve posted on this before: [That dark big box (and other) retail isn’t coming back, is it?](https://boards.straightdope.com/sdmb/showthread.php?t=763297) (2017) [So are malls dying or not?](https://boards.straightdope.com/sdmb/showthread.php?t=782752&highlight=retail) (2015) * * * Actually, it’s going to get worse and never get better, as I believe that the demand for bricks-and-mortar (B&M) retail will never go back to its 1990s peak (or whenever the peak was–I would assume before 9/11). > **[Retail apocalypse](https://en.wikipedia.org/wiki/Retail_apocalypse)** > > Retail apocalypse refers to the closing of numerous brick-and-mortar retail stores, especially those of large chains, beginning around 2010 and accelerating due to the mandatory closures during the COVID-19 pandemic. > In 2017, over 12,000 physical stores closed due to factors such as overleveraging or bankruptcies in the face of rising costs, leveraged buyouts, low quarterly profits outside holiday binge spending, delayed effects of the Great Recession, and changes in spending habits. American ... The economy of Indianapolis is not terrible (I hear), but there are massive retail holes all over the place. Castleton is one of the prime retail areas, but there are whole huge shopping centers there with one or two stores left–or nothing. In good locations next to some pretty high-traffic centers. Since I wrote my last post on this topic, a major Indy-based supermarket chain, Marsh, has gone down the tubes. The city is now littered with a ton of small shopping centers with dead anchors. Ah, and Toys R Us just happened. I have seen very few of the retail holes fill in over the years–not with retail, at least. The Nordstrom hole in the Circle Center Mall downtown became office space (Nordstrom had two stores open and closed one… Ostensibly not a fail on its part, as it grabbed better Fashion Mall space once it became open and then closed the other location. But the lack of demand for this “prime” downtown retail space was telling.) A Ross Dress for Less store filled in a gap in the center with Trader Joe’s in it in Castleton. Other than Ross and Dollar General, stuff that caters to the less affluent, what is on the rise right now in terms of retail? Anything doing all that great? It seems like the last major national retailer to rise was Kohl’s (no idea how successful it actually is). OK, but why is it going to get worse? More anchors are going to fall. On the chopping block: • Sears • Kmart • JC Penny • Macy’s (ugh, if depression were a store, this would be it) Over the long term, it’s hard to point to anything that seems certain. Even high-endish Nordstrom and Saks are not doing all that great. Both are in the aforementioned Fashion Mall, the most “premium” mall in Indy. If one of those were to go, what could possibly take their place? (I’m not saying that that is imminent, but I actually had an ex-Saks employee tell me that she wouldn’t be surprised if it just disappeared overnight one day. One person’s opinion, but…). The thing is, once an anchor dies, all the little retail starts to die too. Domino effect. No anchors are on the rise to take the place of old ones. And I don’t think some future prosperity is going to create new retail giants, either. People will continue to buy online. Further, another trend we’ve discussed on here, the lack of change in fashion over the past 20-25 years encourages people to wear clothes longer or hunt for bargains in used clothing. For example, my ex was recently buying Anthropologie items from a few years ago for super-cheap to replace things she’d worn out. Here’s a Forbes article I thought was not on target: [Physical Retail Is Not Dead: Boring Retail Is](https://www.forbes.com/sites/stevendennis/2018/03/19/physical-retail-is-not-dead-boring-retail-is-understanding-retails-great-bifurcation/#1355862d1981) > [@](#): > > People also seem to forget that, according to most estimates, about 91% of all retail sales last year were still transacted in a brick-and-mortar location. And despite the anticipated continued rapid growth of online shopping, more than 80% of all retail sales will likely still be done in actual physical stores in the year 2025. Different? Absolutely. Dead? Hardly. First, an 11% decline is still massive. Second, how much of that 80% is stuff that is very resistant to change, such as groceries? Third, sales can stay the same while locations die. It’s not as though Kroger has had to build more stores to make up for the Marsh locations that went dark. Next this: > [@](#): > > Revenue, earnings and store growth at both ends of the spectrum and stagnation (or absolute decline) in the vast undifferentiated and boring middle. > > Notably, if we isolate what’s going on with retailers focused on delivering convenience, operational efficiency and remarkably value-priced merchandise, along with those retailers that differentiate themselves on unique product and more remarkable experiential shopping (including great customer service, vibrant stores and digital channels that are well harmonized with their stores), you would conclude not only that physical retail isn’t dead, you could well argue it is quite healthy. The article has a good argument about the collapse of the middle: more and more physical retail is going to cater to the poor and the rich, less to the middle class. I would say, however, that this is making a different point than “physical retail is healthy.” If Macy’s, which caters to the middle, collapses and is replaced by a store that sells everything cheaper, that would seem to me to be a one-to-one trade at best, not exactly a reflection of general abundance or opportunity. Further, Dollar General _is_ boring. Big Lots is boring. Both are sad. They’re successful because they’re cheap. Further, saying that “retailers that differentiate themselves” through the conditions stated above will be successful is pretty vacuous, virtually tautological. The _point_ is that differentiation is harder than ever before in the retail world, inasmuch as people can go on Amazon or Ebay and find precisely what they want without having to go to B&M. Bonus topic. I think Amazon’s acquisition of Whole Foods is a big mistake UNLESS it is just grabbing the locations to do something truly surprising and different. Do I think Bezos has something up his sleeve? If so, it’s not visible yet. Whole Foods is a good example of how something that is special and “differentiated” at first can fairly rapidly be commoditized and made boring. That’s my post. Thoughts? ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [March 24, 2018, 11:59pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/2 "2018-03-24T23:59:15Z")
One of my regrets is not investing in the dollar stores when the great recession hit in 2008. I knew that stores like that (small, easy to get to stores with low prices) would see demand go up, and that has happened. Stocks for family dollar, dollar general & dollar tree have all gone up quite a bit since 2008. Anyway, lack of disposable income and online shopping seem to be the big reasons that B&M stores are going down. I don’t know what kinds will survive. Kroger did buy some of the empty marsh stores though. I forget where in Indy, but down in Bloomington the north side marsh is now a Kroger. I don’t know where it ends. Personally, about the only thing I buy in a B&M store is groceries and gasoline. I buy auto parts at B&M stores, but only after buying them online and picking them up in store. ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [March 25, 2018, 1:06am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/3 "2018-03-25T01:06:38Z")
What you said, yes. And: > [@Wesley\_Clark](#): > > Kroger did buy some of the empty marsh stores though. I forget where in Indy, but down in Bloomington the north side marsh is now a Kroger. Yeah, a significant percentage of them were bought, maybe about 1/3. Some retaining the employees that were there, which is good. What I said ended up unintentionally distorting the facts, but I really just meant to point out that maintaining that 80% B&M sales ratio doesn’t necessarily imply that we will see as many locations in service. Things can get a lot more compact, especially with better logistics than existed in the past. ---
**Author:** ![echoreply](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/echoreply/32/3641_2.png) [@echoreply](https://boards.straightdope.com/u/echoreply)\ **Post date:** [March 25, 2018, 1:19am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/4 "2018-03-25T01:19:01Z")
I keep seeing that Amazon killed Toys R Us, and such, which completely skips [the huge amount of debt](https://www.marketplace.org/2018/03/06/business/toys-r-us-and-how-retail-downturn-story-about-debt) that Toys R Us had. They were the victims of a leveraged buy out in 2005. They were bought for $6.6 billion by Bane Capital and others, but, just like a mortgage, only 20% was put down, and the rest was financed using Toys R Us itself as the collateral. Toys R Us was then given more than $5 billion in debt. Making those payments is a huge disadvantage to play with. Even losing sales to Amazon, Walmart, and others, Toys R Us still might have survived if so much of their revenue didn’t have to go to cover their debt. ---
**Author:** ![watchwolf49](https://avatars.discourse-cdn.com/v4/letter/w/e9c0ed/32.png) [@watchwolf49](https://boards.straightdope.com/u/watchwolf49)\ **Post date:** [March 25, 2018, 2:45am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/5 "2018-03-25T02:45:18Z")
I remember the folks complaining about how mall and big box stores were putting the small community markets out of business … now the internet is putting malls and big box out of business … the question is what will put the internet out of business? … it’s just business “evolution” … When I was growing up, the mall was The Place to meet up with friends where the parents weren’t looking … how much do you suppose Social Media has taken that roll now? … ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [March 25, 2018, 3:08am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/6 "2018-03-25T03:08:52Z")
> [@echoreply](#): > > I keep seeing that Amazon killed Toys R Us, and such, which completely skips [the huge amount of debt](https://www.marketplace.org/2018/03/06/business/toys-r-us-and-how-retail-downturn-story-about-debt) that Toys R Us had. > > They were the victims of a leveraged buy out in 2005. They were bought for $6.6 billion by Bane Capital and others, but, just like a mortgage, only 20% was put down, and the rest was financed using Toys R Us itself as the collateral. Toys R Us was then given more than $5 billion in debt. > > Making those payments is a huge disadvantage to play with. Even losing sales to Amazon, Walmart, and others, Toys R Us still might have survived if so much of their revenue didn’t have to go to cover their debt. I read that article, thank you. But I don’t yet fully understand. Could you explain to me how the private equity firms can borrow money from a bank in order to purchase a business and then have the business be on the hook for the loan. Not sure I get that part. I mean, what do the bank records say as to who took out the loan? ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [March 25, 2018, 3:17am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/7 "2018-03-25T03:17:20Z")
> [@Aeschines](#): > > Bonus topic. I think Amazon’s acquisition of Whole Foods is a big mistake UNLESS it is just grabbing the locations to do something truly surprising and different. Do I think Bezos has something up his sleeve? If so, it’s not visible yet. Whole Foods is a good example of how something that is special and “differentiated” at first can fairly rapidly be commoditized and made boring. In the last year I’ve seen reports of how Amazon is seeking to establish a presence in physical stores and Walmart is seeking to establish a greater presence as an online seller. And I couldn’t help thinking _“At least one of you is making a huge mistake.”_ ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [March 25, 2018, 1:15pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/8 "2018-03-25T13:15:57Z")
> [@Isamu](#): > > I read that article, thank you. But I don’t yet fully understand. Could you explain to me how the private equity firms can borrow money from a bank in order to purchase a business and then have the business be on the hook for the loan. Not sure I get that part. I mean, what do the bank records say as to who took out the loan? > **[Leveraged buyout](https://en.wikipedia.org/wiki/Leveraged_buyout)** > > A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The use of debt, which normally has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition. This is done at the risk of magnified cash flow losses should the acq... These transactions can be very complicated, needless to say. The article says, **LBOs mostly occur in private companies, but can also be employed with public companies (in a so-called PtP transaction – Public to Private).** Toys R Us was PtP: > **[Toys "R" Us](https://en.wikipedia.org/wiki/Toys_%22R%22_Us#Administration_and_closure)** > > macys.com/toysrus (shopping) > Toys "R" Us\[nb 1\] is an American toy, clothing, and baby product retailer owned by Tru Kids (doing business as Tru Kids Brands) and various others. The company was founded in 1948; its first store was built in April 1948, with its headquarters located in Parsippany-Troy Hills, New Jersey, in the New York metropolitan area. > While originally considered a category killer, the rise of mass merchants and online retailers cost Toys "R" Us its share of the toy market. ... **On 17 March 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR) and Vornado Realty Trust announced a $6.6 billion leveraged buyout of the company.[28] Public stock closed for the last time on 21 July 2005 at $26.74—a 63% increase since when it first announced that the company was put up for sale. Toys “R” Us became a privately owned entity after the buyout.** So how does the company get “on the hook” for the debt? Well, I don’t know the details, but those Bain guys probably formed a company called something like “Toy Holdings,” which was what bought Toys R Us. Then “Toy Holdings” is on hook for the debt, but it is more or less synonymous with Toys R Us. The name and structure can be virtually anything they want to make it. For example: > **[Sears](https://en.wikipedia.org/wiki/Sears)** > > Sears, Roebuck and Co. (/sɪərz/ SEERZ), commonly known as Sears, is an American chain of department stores founded in 1892 by Richard Warren Sears and Alvah Curtis Roebuck and reincorporated in 1906 by Richard Sears and Julius Rosenwald, with what began as a mail ordering catalog company migrating to opening retail locations in 1925, the first in Chicago. In 2005, the company was bought by the management of the American big box discount chain Kmart, which upon completion of the merger, form Se... **The company was bought by the management of the American big box chain Kmart in 2005, the Kmart management formed Sears Holdings upon completion of the merger.** ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [March 25, 2018, 1:26pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/9 "2018-03-25T13:26:31Z")
> [@Aeschines](#): > > [Leveraged buyout - Wikipedia](https://en.wikipedia.org/wiki/Leveraged_buyout) > > These transactions can be very complicated, needless to say. The article says, **LBOs mostly occur in private companies, but can also be employed with public companies (in a so-called PtP transaction – Public to Private).** > > Toys R Us was PtP: > > [Toys "R" Us - Wikipedia](https://en.wikipedia.org/wiki/Toys_%22R%22_Us#Administration_and_closure) > > **On 17 March 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR) and Vornado Realty Trust announced a $6.6 billion leveraged buyout of the company.[28] Public stock closed for the last time on 21 July 2005 at $26.74—a 63% increase since when it first announced that the company was put up for sale. Toys “R” Us became a privately owned entity after the buyout.** > > So how does the company get “on the hook” for the debt? Well, I don’t know the details, but those Bain guys probably formed a company called something like “Toy Holdings,” which was what bought Toys R Us. Then “Toy Holdings” is on hook for the debt, but it is more or less synonymous with Toys R Us. > > The name and structure can be virtually anything they want to make it. For example: > > [Sears - Wikipedia](https://en.wikipedia.org/wiki/Sears) > > **The company was bought by the management of the American big box chain Kmart in 2005, the Kmart management formed Sears Holdings upon completion of the merger.** Thanks for your reply. You can’t explain it either, it seems. I was curious because I thought you might know but I don’t blame you for not knowing. It strikes me that it can’t be anything other than private loans, or, if funded by a public bank, collusion between people who are scratching each others backs. Unless I’m missing something… ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [March 25, 2018, 1:34pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/10 "2018-03-25T13:34:48Z")
> [@Little\_Nemo](#): > > In the last year I’ve seen reports of how Amazon is seeking to establish a presence in physical stores and Walmart is seeking to establish a greater presence as an online seller. And I couldn’t help thinking _“At least one of you is making a huge mistake.”_ Like anybody else, I’m not a Walmart fan, so I wouldn’t mind seeing them get another bloody nose, as they did with Sam’s Club recently (they shut a bunch down, including one near my home). I _am_ an Amazon fan, but I wouldn’t mind seeing them get mildly burned by the Whole Foods acquisition. The curse of capitalism is that companies are virtually forced to grow until they start to screw up and doing damage to themselves and others. I don’t mind Amazon being big, but I don’t want it to take over the world, either. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [March 25, 2018, 2:18pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/11 "2018-03-25T14:18:47Z")
> [@Little\_Nemo](#): > > In the last year I’ve seen reports of how Amazon is seeking to establish a presence in physical stores and Walmart is seeking to establish a greater presence as an online seller. And I couldn’t help thinking _“At least one of you is making a huge mistake.”_ I don’t think so. There’s a good chance the future lies in getting the right combination of on-line and B&M options for your customers. The big mistake would be assuming that your current business model is going to continue to work successfully 10 or 20 years down the road. ---
**Author:** ![Tired\_and\_Cranky](https://avatars.discourse-cdn.com/v4/letter/t/a87d85/32.png) [@Tired\_and\_Cranky](https://boards.straightdope.com/u/Tired_and_Cranky)\ **Post date:** [March 25, 2018, 2:59pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/12 "2018-03-25T14:59:13Z")
> [@Isamu](#): > > Thanks for your reply. You can’t explain it either, it seems. I was curious because I thought you might know but I don’t blame you for not knowing. It strikes me that it can’t be anything other than private loans, or, if funded by a public bank, collusion between people who are scratching each others backs. Unless I’m missing something… Ok. I’ll answer definitively. Aeschines is exactly right about how it can happen. It happened slightly differently in the the Toys R Us going private transaction. The details barely matter. In the Toys R Us transaction, the consortium of buyers formed an entity called Global Toys Acquisition, LLC to become the holding company. The holding company arranged to (1) form a wholly-owned subsidiary called Global Toys Acquisition Merger Sub, Inc. and (2) borrow up to $6.2 billion from a number of sources to buy Toys R Us, Inc. The holding company got Toys R Us’s shareholders to approve a merger with Global Toys Acquisition Merger Sub, Inc. in which Toys R Us, Inc. was the surviving company. So, the old shareholders of Toys R Us, Inc. got money. Global Toys Acquisition, LLC came to own all of Toys R Us, Inc. paid for (mostly) with money it borrowed. Global Toys Acquisition, LLC then planned to use the earnings from Toys R Us, Inc. to pay all of the debt off. Since the only thing Global Toys Acquisition, LLC owns is Toys R Us, Inc. and the only thing it does is run Toys R Us, Inc., there is no practical difference between the two although the difference matters for tax and liability purposes. Why were the lenders willing to give Global Toys Acquisition, LLC the money? Because the lenders believed that Toys R Us, Inc.'s assets and business prospects would allow the parent company to repay all the loans. If you want to read all the gory details, they are here: [https://www.sec.gov/Archives/edgar/data/1005414/000119312505091145/dprem14a.htm](https://www.sec.gov/Archives/edgar/data/1005414/000119312505091145/dprem14a.htm) ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [March 25, 2018, 8:26pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/13 "2018-03-25T20:26:17Z")
> [@Isamu](#): > > Thanks for your reply. You can’t explain it either, it seems. I was curious because I thought you might know but I don’t blame you for not knowing. It strikes me that it can’t be anything other than private loans, or, if funded by a public bank, collusion between people who are scratching each others backs. Unless I’m missing something… The lender may have been _you_, if you have a High-Yield fund in your retirement account. As **Tired and Cranky** says, “The details barely matter.” The outgoing and incoming managements of the bought-out company are in agreement so can do as they please (subject to regulatory approval, which is hardly an obstacle in “business-friendly” U.S.A.) The company borrows and redeems shares. The company’s sellers are happy — they wouldn’t have sold if they didn’t like the above-market price they’re getting. The company’s buyers, or rather the management company that leads the buy-out, are happy — they get a chunky management fee up-front and are likely to sell much of their stake while the market is still giddy. Investors, like gamblers, have their shot — sometimes you make your point and sometimes you hear the croupier chant “Seven Out; Line away. Last Come and the Do-Nots Pay.” The junk bond funds who supply the greenbacks are serving their customers — if they keep getting burned, they’ll just ask for higher interest rates next time. The store’s customers and employees are likely to end up unhappy — high debt is not a recipe for growth or confidence — but the transaction was never about them. Welcome to modern American capitalism. Adam Smith is turning over in his grave. ---
**Author:** ![Aeschines](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/aeschines/32/16251_2.png) [@Aeschines](https://boards.straightdope.com/u/Aeschines)\ **Post date:** [March 25, 2018, 9:29pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/14 "2018-03-25T21:29:05Z")
> [@septimus](#): > > Welcome to modern American capitalism. Adam Smith is turning over in his grave. Agreed. It’s total garbage. While we’re on the topic, Nordstrom failed to go private recently. The Nordstrom family et al. tried to get financing for a buyout. They were unable to get it done. Whether that’s good or bad for Nordstrom is hard to say. I wouldn’t say it’s on a very solid path right now, but a buyout could have been disastrous as well. ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [March 26, 2018, 1:18am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/15 "2018-03-26T01:18:04Z")
> [@septimus](#): > > The lender may have been _you_, if you have a High-Yield fund in your retirement account. > . > [@Tired\_and\_Cranky](#): > > Ok. I’ll answer definitively. Aeschines is exactly right about how it can happen. > ] Thanks all. I imagined just such an arrangement, I just couldn’t imagine who would lend money to them. But if its private funding, from multiple sources, then, yes I can see it. ---
**Author:** ![Absolute](https://avatars.discourse-cdn.com/v4/letter/a/b2d939/32.png) [@Absolute](https://boards.straightdope.com/u/Absolute)\ **Post date:** [March 26, 2018, 2:34am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/16 "2018-03-26T02:34:39Z")
> [@septimus](#): > > The lender may have been _you_, if you have a High-Yield fund in your retirement account. > > As **Tired and Cranky** says, “The details barely matter.” The outgoing and incoming managements of the bought-out company are in agreement so can do as they please (subject to regulatory approval, which is hardly an obstacle in “business-friendly” U.S.A.) The company borrows and redeems shares. > > The company’s sellers are happy — they wouldn’t have sold if they didn’t like the above-market price they’re getting. The company’s buyers, or rather the management company that leads the buy-out, are happy — they get a chunky management fee up-front and are likely to sell much of their stake while the market is still giddy. Investors, like gamblers, have their shot — sometimes you make your point and sometimes you hear the croupier chant “Seven Out; Line away. Last Come and the Do-Nots Pay.” The junk bond funds who supply the greenbacks are serving their customers — if they keep getting burned, they’ll just ask for higher interest rates next time. The store’s customers and employees are likely to end up unhappy — high debt is not a recipe for growth or confidence — but the transaction was never about them. > > Welcome to modern American capitalism. Adam Smith is turning over in his grave. Regardless, the self-limiting factor is that the lenders have to believe they’re going to get paid, right? It’s not just a matter of increasing the interest rate they charge, since higher rates increase the chance of default. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [March 26, 2018, 4:04pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/17 "2018-03-26T16:04:43Z")
> [@Isamu](#): > > I read that article, thank you. But I don’t yet fully understand. Could you explain to me how the private equity firms can borrow money from a bank in order to purchase a business and then have the business be on the hook for the loan. Not sure I get that part. I mean, what do the bank records say as to who took out the loan? The legal structure is a bit more elaborate, but the business is the collateral pledged by the new owners for the purchase loan. It’s the same way most people buy a house. LBOs are risky but can pay off under the right circumstances. [Here](https://www.quora.com/What-have-been-some-successful-leveraged-buyouts) is a Quora discussion of some of the factors involved, with a few examples of successes. Remember that in 2005, Toys R Us was a category killer, in the process of crushing FAO Schwarz and KB Toys. Its collapse is only noteworthy now because it was the toy store that (debt notwithstanding) managed to hang on the longest. The LBO was a gamble that the market for toys would keep growing and that TRU’s dominance would continue. They didn’t foresee the severity of the 2008 downturn or the expansion of Amazon (or the rise of the direct-download video game market), but plenty of retailers not laden with debt have also died in recent years after missing those same two factors… ---
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [March 26, 2018, 4:31pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/18 "2018-03-26T16:31:49Z")
> [@Little\_Nemo](#): > > In the last year I’ve seen reports of how Amazon is seeking to establish a presence in physical stores and Walmart is seeking to establish a greater presence as an online seller. And I couldn’t help thinking _“At least one of you is making a huge mistake.”_ Do you really think so? It’s not like there’s only going to be one retail channel in the future. There will be both online stores and physical stores in the future. I’m pretty sure of it. The relatives size of the market in physical stores is probably going to be smaller, but that doesn’t mean that there’s no room for a new entrant to make money. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [March 26, 2018, 6:20pm UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/19 "2018-03-26T18:20:53Z")
> [@John\_Mace](#): > > I don’t think so. There’s a good chance the future lies in getting the right combination of on-line and B&M options for your customers. The big mistake would be assuming that your current business model is going to continue to work successfully 10 or 20 years down the road. > [@iamthewalrus\_3](#): > > Do you really think so? > > It’s not like there’s only going to be one retail channel in the future. There will be both online stores and physical stores in the future. I’m pretty sure of it. The relatives size of the market in physical stores is probably going to be smaller, but that doesn’t mean that there’s no room for a new entrant to make money. Some people have the unsupported belief that if a big corporation decides to do something then it must be a sensible idea even if it looks foolish. Personally, I think there’s a good chance both companies are screwing up. They’ve been successful following the same formula: be the top company in a field where the top company dominates the field. I’m assuming both companies understand how they became successful. But for some reason they’re both trying to defy that formula in another field; they’re both trying to come in as a second-tier company in a field where the top company crushes second-tier companies. Amazon will end up becoming the next K-Mart and Walmart will end up becoming the next [Pets.com](http://Pets.com). The big question is whether they’ll sink enough money into these attempts that it will endanger their core business. ---
**Author:** ![alphaboi867](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alphaboi867/32/3898_2.png) [@alphaboi867](https://boards.straightdope.com/u/alphaboi867)\ **Post date:** [March 27, 2018, 1:10am UTC](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133/20 "2018-03-27T01:10:59Z")
> [@watchwolf49](#): > > I remember the folks complaining about how mall and big box stores were putting the small community markets out of business … now the internet is putting malls and big box out of business … the question is what will put the internet out of business? … [Molecular assemblers](https://en.wikipedia.org/wiki/Molecular_assembler)? [Next page](https://boards.straightdope.com/t/the-retail-apocalypse-is-going-to-get-worse-before-it-gets-better/811133.md?page=2)