One thing about the U.S. economy is that it is interdependent. We all tend to feel a financial pinch at the same time. When things are going well, consumers feel the freedom to spend their disposable income recreationally or buy entertainment products. Today, consumers have less disposable income than at any time in recent memory, and factors such as the pandemic have yet to recede.
When consumers have less disposable income, they tend to scale back on shopping. So, retailers are always the first to feel the pinch. Retail remains the largest sector of the U.S. employment economy. When retail fails, layoffs ensue, and then personal bankruptcies often follow.
Factors Causing Retail Bankruptcies
Inflation has been a major factor in reducing consumer spending. As the cost of necessities such as food and utilities continues to increase amid stagnant wages, people have less money to spend. This has reduced demand bloating inventory for retailers, which must now sell off the inventory at discounted rates.
Risk assessments performed on companies this time last year showed only three in the red zone of likely bankruptcies. This year, 18 retailers are in that category.
Supply chain issues have also hit retail hard. At certain points, it became difficult or expensive to get products into individual stores all across America, bloating prices. In fact, it is much cheaper to keep products at a warehouse and ship them out as needed. It is also easier. So stores that are operating online have a major advantage over retailers right now. The costs related to operating these online stores are significantly less than those related to retail.
Retail Was in Trouble Before the Pandemic
Retail operated on a Black Friday model of profits. In other words, you ran in the red all the way to Thanksgiving, and then the day after Thanksgiving, which became a major shopping holiday in America, the retailers would hit the black. But what if you were hitting the black after Christmas? Then you are barely breaking even. More and more retailers have failed to break even during holiday shopping.
The trend began before the pandemic as more folks had access to services like Amazon and eBay, where they could purchase goods from their home. That trend solidified as the pandemic forced the public indoors. Today, the momentum away from mass retail appears to be continuing. This could create major unemployment problems in the months to come.
Talk to an Indiana Bankruptcy Attorney Today
Chris Arrington helps Indiana residents in financial turmoil. Call our office today to schedule an appointment, and we can discuss your best moves immediately.