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Retail Apocalypse: Sports Retailer Abruptly Closing All Stores

With mass-market retailers including Target stepping up their athletic wear game, it has become harder for less players to compete.

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With mass-market retailers including Target stepping up their athletic wear game, it has become harder for less players to compete.

The past few years have not been kind to brick-and-mortar retail chains. Even though digital sales only represent about 14% of the market (roughly 20% during the darkest lockdown days of the pandemic) consumers have increased choice. That has led to a long list of bankruptcies as it's no longer to simply be a store at the mall in a decent location.

Bankruptcies actually fell in 2021 compared to 2020 from 52 to 21, but some stores were likely saved by pandemic-era rent deductions, government programs, and customers flush with stimulus cash. The retail market remains very competitive as consumers have the option of buying pretty much anything from Amazon (AMZN) - Get Amazon.com Inc. Report and having it delivered in no more than two days.

The athletic apparel space has become incredibly competitive as Nike  (NKE) - Get Nike Inc. Report has stepped up its direct-to-consumer efforts while lululemon  (LULU) - Get lululemon athletica inc. Report has become a major high-end player, and Target (TGT) - Get Target Corporation Report has revamped its offerings adding high-quality, low-price athletic wear for men and women.

Add in that Dick's Sporting Goods (DKS) - Get Dick's Sporting Goods Inc Report has been a major retail winner and you can see that it's a brutal environment for retailers in the athletic space. That makes it not entirely shocking, but still a surprise, that one major retailer has abruptly called it quits.

Image source: Shutterstock

Olympia Sports Closing All its Stores

Olympia Sports has decided to close all of its stores, according to a brief posting on its website. The company provided very little detail other than saying that all locations are closing and all sales are final.

The company has over 45 years of history, according to the text posted on its website.

"Olympia Sports was established in 1975 with our first store at The Maine Mall in South Portland, ME. Today we have grown to more than 70 locations throughout the Northeast, Mid-Atlantic, and Mid-West," the company shared.

A self-described "premium athletic specialty brand assortment" retailer, the chain's stores carried Nike, Adidas, and Under Armour (among) - Get Under Armour Inc. Class C Report other brands.

No timetable has been given for the closure date, which may vary by location. In many cases, retailers contract out part of their going out of business sale process to outside firms (that may bring in merchandise that does not meet the chain's original standards).

Olympia Sports has not made any statements as to whether it will survive as a digital brand.

All sales made after July 21 are considered final.

Brick-and-Mortar Has Gotten Harder

Brands like Olympia Sports have been hurt by Nike working to build its direct-to-consumer sales. The sneaker and fitness apparel maker has pulled its products from many of its former partners and has taken sales from the ones it still works with by selling direct.

For many smaller retailers, the combination of losing products/vendors and facing increased competition creates an impossible operating environment. Olympia Sports owner CriticalPoint Capital has not said why it chose to close the chain, but Olympia Sports has been steadily shrinking from the 70 stores it claims on it websites to roughly 35 that are open now.

And while this is not that large of a retailer, the closing puts added pressure on the second-tier malls and strip malls which have been struggling as a number of retailers either close or shrink their portfolios. 

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$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research…

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$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research (IAB) on Tuesday outlines how Germany's economy will lose a whopping 260 billion euros ($265 billion) in added value by the end of the decade due to high energy prices sparked by Russia's invasion of Ukraine which will have severe ramifications on the labor market, according to Reuters

IAB said Germany's price-adjusted GDP could be 1.7% lower in 2023, with approximately 240,000 job losses, adding labor market turmoil could last through 2026. It expects the labor market will begin rehealing by 2030 with 60,000 job additions.

The report pointed out the hospitality industry will be one of the biggest losers in the coming downturn that the coronavirus pandemic has already hit. Consumers who have seen their purchasing power collapse due to negative real wage growth as the highest inflation in decades runs rampant through the economy will reduce spending. 

IAB said energy-intensive industries, such as chemical and metal industries, will be significantly affected by soaring power prices. 

In one scenario, IAB said if energy prices, already up 160%, were to double again, Germany's economic output would crater by nearly 4% than it would have without energy supply disruptions from Russia. Under this assumption, 660,000 fewer people would be employed after three years and still 60,000 fewer in 2030. 

This week alone, German power prices hit record highs as a heat wave increased demand, putting pressure on energy supplies ahead of winter. 

Rising power costs are putting German households in economic misery as economic sentiment across the euro-area economy tumbled to a new record low. What happens in Germany tends to spread to the rest of the EU. 

There are concerns that a sharp weakening of growth in Germany could trigger stagflation as German inflation unexpectedly re-accelerated in July, with EU-Harmonized CPI rising 8.5% YoY. 

Germany is facing an unprecedented energy crisis as Russian natural gas cuts via the Nord Stream 1 pipeline will reverse the prosperity many have been accustomed to as the largest economy in Europe. 

"We are facing the biggest crisis the country has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years," Rainer Dulger, head of the Confederation of German Employers' Associations, warned last month. 

Besides Dulger, Economy Minister Robert Habeck warned of a "catastrophic winter" ahead over Russian NatGas cut fears.

Other officials and experts forecast bankruptcies, inflation, and energy rationing this winter that could unleash a tsunami of shockwaves across the German economy.  

Yasmin Fahimi, the head of the German Federation of Trade Unions, warned last month:

"Because of the NatGas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry." 

IAB's report appears to be on point as the German economy seems to be diving head first into an economic crisis. Much of this could've been prevented, but Europe and the US have been so adamant about slapping Russia with sanctions that have embarrassingly backfired. 

Tyler Durden Wed, 08/10/2022 - 04:15

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Will Powell Pivot? Don’t Count On It

Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For…

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Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For fear of missing out on the next great bull run, many investors are blindly buying into this new Powell pivot narrative.

What these investors fail to realize is the Fed has a problem. Inflation is raging, the likes of which the Fed hasn’t dealt with since Jerome Powell earned his law degree from Georgetown University in 1979.  

Despite inflation, markets seem to assume that today’s Fed has the same mindset as the 1990-2021 Fed. The old Fed would have stopped raising rates when stocks fell 20% and certainly on the second consecutive negative GDP print. The current Fed seems to want to keep raising rates and reducing its balance sheet (QT).

The market-friendly Fed we grew accustomed to over the last few decades may not be driving the ship anymore. Yesterday’s investment strategies may prove flawed if a new inflation-minded Fed is at the wheel.

Of course, you can ignore the realities of today’s high inflation and take Jim Cramer’s ever-bullish advice.

When the Fed gets out of the way, you have a real window and you’ve got to jump through it. … When a recession comes, the Fed has the good sense to stop raising rates,” the “Mad Money” host said. “And that pause means you’ve got to buy stocks.

Shifting Market Expectations

On June 10, 2022, the Fed Funds Futures markets implied the Fed would raise the Fed Funds rate to 3.20% in January 2023 and to 3.65% by July 2023. Such suggests the Fed would raise rates by almost 50bps between January and July.

Now the market implies Fed Funds will be 3.59% in January, up .40% in the last two months. However, the market implies July Fed Funds will be 3.52%, or .13% less than its January expectations. The market is pricing in a rate reduction between January and July.

The graph below highlights the recent shift in market expectations over the last two months.

The graph below from the Daily Shot shows compares the market’s implied expectations for Fed Funds (black) versus the Fed’s expectations. Each blue dot represents where each Fed member thinks Fed Funds will be at each year-end. The market underestimates the Fed’s resolve to increase interest rates by about 1%.

Short Term Inflation Projections

The biggest flaw with pricing in predicting a stall and Powell pivot in the near term is the possible trajectory of inflation. The graph below shows annual CPI rates based on three conservative monthly inflation data assumptions.

If monthly inflation is zero for the remainder of 2022, which is highly unlikely, CPI will only fall to 5.43%. Yes, that is much better than today’s 9.1%, but it is still well above the Fed’s 2.0% target. The other more likely scenarios are too high to allow the Fed to halt its fight against inflation.

cpi inflation

Inflation on its own, even in a rosy scenario, is not likely to get Powell to pivot. However, economic weakness, deteriorating labor markets, or financial instability could change his mind.

Recession, Labor, and Financial Instability

GDP just printed two negative quarters in a row. Some economists call that a recession. The NBER, the official determiner of recessions, also considers the health of the labor markets in their recession decision-making. 

The graph below shows the unemployment rate (blue), recessions (gray), and the number of months the unemployment rate troughed (red) before each recession. Since 1950 there have been eleven recessions. On average, the unemployment rate bottoms 2.5 months before an official recession declaration by the NBER. In seven of the eleven instances, the unemployment rate started rising one or two months before a recession.

unemployment and recession

The unemployment rate may start ticking up shortly, but consider it is presently at a historically low level. At 3.5%, it is well below the 6.2% average of the last 50 years. Of the 630 monthly jobs reports since 1970, there are only three other instances where the unemployment rate dipped to 3.5%. There are zero instances since 1970 below 3.5%!

Despite some recent signs of weakness, the labor market is historically tight. For example, job openings slipped from 11.85 million in March to 10.70 in June. However, as we show below, it remains well above historical norms.

jobs employment recession

A tight labor market that can lead to higher inflation via a price-wage spiral is of concern for the Fed. Such fear gives the Fed ample reason to keep tightening rates even if the labor markets weaken. For more on price-wage spirals, please read our article Persistent Inflation Scares the Fed.

Financial Stability

Besides economic deterioration or labor market troubles, financial instability might cause Jerome Powell to pivot. While there were some growing signs of financial instability in the spring, those warnings have dissipated.  

For example, the Fed pays close attention to the yield spread between corporate bonds and Treasury bonds (OAS) for signs of instability. They pay particular attention to yield spreads of junk-rated corporate debt as they are more volatile than investment-grade paper and often are the first assets to show signs of problems.

The graph below plots the daily intersections of investment grade (BBB) OAS and junk (BB) OAS since 1996. As shown, the OAS on junk-rated debt is almost 3% below what should be expected based on the robust correlation between the two yield spreads. Corporate debt markets are showing no signs of instability!

corporate bonds financial stability

Stocks, on the other hand, are lower this year. The S&P 500 is down about 15% year to date. However, it is still up about 25% since the pandemic started. More importantly, valuations have fallen but are still well above historical averages. So, while stock prices are down, there are few signs of equity market instability. In fact, the recent rally is starting to elicit FOMO behaviors so often seen in speculative bullish runs.

Declining yields, tightening yield spreads, and rising asset prices are inflationary. If anything, recent market stability gives the Fed a reason to keep raising rates. Ex-New York Fed President Bill Dudley recently commented that market speculation about a Fed pivot is overdone and counterproductive to the Fed’s efforts to bring down inflation.

What Does the Fed Think?

The following quotes and headlines have all come out since the late July 2022 Fed meeting. They all point to a Fed with no intent to stall or pivot despite its effect on jobs and the economy.

  • *KASHKARI: 2023 RATE CUTS SEEM LIKE `VERY UNLIKELY SCENARIO’
  • Fed’s Kashkari: concerning inflation is spreading; we need to act with urgency
  • *BOWMAN: SEES RISK FOMC ACTIONS TO SLOW JOB GAINS, EVEN CUT JOBS
  • *DALY: MARKETS ARE AHEAD OF THEMSELVES ON FED CUTTING RATES
  • St. Louis Fed President James Bullard says he favors a strategy of “front-loading” big interest-rate hikes, repeating that he wants to end the year at 3.75% to 4% – Bloomberg
  • FED’S BULLARD: TO GET INFLATION COMING DOWN IN A CONVINCING WAY, WE’LL HAVE TO BE HIGHER FOR LONGER.
  • “If you have to cut off the tail of a dog, don’t do it one inch at a time.”- Fed President Bullard
  • “There is a path to getting inflation under control,” Barkin said, “but a recession could happen in the process” – MarketWatch
  • The Fed is “nowhere near” being done in its fight against inflation, said Mary Daly, the San Francisco Federal Reserve Bank president, in a CNBC interview Tuesday.  –MarketWatch
  • “We think it’s necessary to have growth slow down,” Powell said last week. “We actually think we need a period of growth below potential, to create some slack so that the supply side can catch up. We also think that there will be, in all likelihood, some softening in labor market conditions. And those are things that we expect…to get inflation back down on the path to 2 percent.”

Summary

We are highly doubtful that Powell will pivot anytime soon. Supporting our view is the recent action of the Bank of England. On August 4th they raised interest rates by 50bps despite forecasting a recession starting this year and lasting through 2023. Central bankers understand this inflation outbreak is unique and are caught off guard by its persistence.

The economy and markets may test their resolve, but the threat of a long-lasting price-wage spiral will keep the Fed and other banks from taking their foot off the brakes too soon.

We close by reminding you that inflation will start falling in the months ahead, but it hasn’t even officially peaked yet.

The post Will Powell Pivot? Don’t Count On It appeared first on RIA.

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Airlines Are Going to Hate it if Biden Gets This Through

The administration is considering doing something about one of the things people hate most about flying.

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The administration is considering doing something about one of the things people hate most about flying.

The airline industry has had a very bumpy road back to whatever passes for normalcy in the covid era. This past weekend was a particularly bad headache for air travelers, as 950 flights were canceled on Sunday, and 8,000 were delayed. It was a tough weekend overall, as 657 flights were canceled on Saturday, and 7,267 flights were also delayed that day. 

In fact, according to the Bureau of Transportation Statistics, of the more than 2.73 million flights so far in 2022, roughly 20% have been delayed while 3% were canceled.

The reasons for this are myriad. Climate change is leading to increasingly unpredictable weather. While many people are beginning to act like covid is over, that’s just not the case, and many flights are still getting canceled because crew members have become infected and need to quarantine.

Additionally, the airlines are all understaffed, as the industry lost more than 400,000 workers during the pandemic. Many pilots retired, and the industry has struggled to attract enough people to replace them in a tight labor market. Additionally, the workers who stayed report that they feel burnt-out and overworked, and in some instances fear for their safety.

This leads to more workers quitting or calling in sick, and therefore flights get canceled because there’s not enough people to work them.

Cancelations are a headache no matter which way you slice it. But a proposal from Transportation Secretary Pete Buttigieg might make it easier for customers to get a refund in a timely manner.

Want A Refund For A Canceled Flight? Good Luck!

Getting a refund for a canceled flight is like pulling teeth. 

Technically, it is federal law that consumers are entitled to a refund if an airline cancels a flight and the consumer chooses not to travel, as the Department of Transportation has stated customers can get a refund if the airline “made a significant schedule change and/or significantly delays a flight and the consumer chooses not to travel,” according to the Department of Transportation.

But the problem, as noted by ABC News, is that the “DOT has not defined what constitutes a “significant delay.” According to the agency, whether you are entitled to a refund depends on multiple factors, including the length of the delay, the length of the flight and “your particular circumstances.”

It’s rare for an airline to just say “tough luck” and not give the customer anything after a cancellation. (Imagine the social media firestorm!) But while there’s no industry-wide standard, most airlines just issue vouchers or credits for a future flight instead of a cash refund, which ties the customer to that airline in the future.

What’s even more frustrating is that very often these vouchers will expire within a year, which doesn’t always work for many people’s travel plans. Though to be fair, Southwest  (LUV) - Get Southwest Airlines Company Report did recently announce they would be changing this policy, removing all expiration dates from flight credits.  

Win McNamee/Getty

Mayor Pete Wants To Make Refunds Easier

Buttigieg has announced a proposal that would expand customer rights in terms of protections cancelations and refunds for both domestic and international flights. “This new proposed rule would protect the rights of travelers and help ensure they get the timely refunds they deserve from the airlines,” states Buttigieg.

Under the proposal, passengers who do not accept alternate transportation (i.e. getting bumped to a later flight) will be eligible for a refund for any of the below circumstances. 

  • If your flight is canceled
  • Whenever departure or arrival times are delayed by at least three hours for domestic flights or by at least six hours for international flights, if flyers opt-out of taking the flight
  • Anytime the departure or arrival airport changes or the number of connections is increased on an itinerary
  • If the original aircraft has to be replaced by another but there’s a major difference in the onboard amenities offered and overall travel experience as a result

The proposal would require airlines to issue vouchers, with no expiration date, when passengers are “unable to fly for certain pandemic-related reasons, such as government-mandated bans on travel, closed borders, or passengers advised not to travel to protect their health or the health of other passengers.”

But if an airline or ticket agency received pandemic-related government assistance, they would be required to issue cash refunds instead of vouchers.

In an interview with The Points Guy, Buttigieg said “Every step moves us further towards passengers being more protected,” he said. “This is based on authorities that have built up over time, but it’s clear that the passenger experience isn’t good enough, and we need to do more to clarify airlines’ responsibilities and to make clear what we’re going to do to enforce them.”

While this is just a proposal at the moment, Buttigieg said “I think we can move this one pretty quickly, barring any surprises.” He added that “We are going to be responsive to feedback and the suggestions that come in.”

If you have thoughts on this matter, the public is invited to attend a virtual meeting hosted by the Aviation Consumer Protection Advisory Committee that’s scheduled for Aug. 22, 2022. Any comments you wish to make about this proposal can be submitted here under docket number DOT-OST-2022-0089. 

 

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