Retail has been going the way of the dodo even before the pandemic struck in 2020. Post-pandemic, many of these businesses remained on life support as government payouts kept them alive. Now, retailers are pinning all of their hopes on the Christmas season to get them back in the black, but the economic slowdown could be the final nail in the coffin.
Meanwhile, American consumers have much less disposable income even though the job market remains steady. Wages are failing to keep up with food and gas prices, meaning that Americans have less disposable income to spend on recreation and more stuff.
Several retailers filed for bankruptcy in 2020, but by 2021, those numbers dwindled considerably. The same may not be true of 2023. While many expect that smaller companies and mall stores will be dropping like flies in 2023, the news may be more dire than that. A potential recession could result in some of the larger players, like Target, taking massive hits. Target recently announced that they would be liquidating slow-moving assets in a bid to make up shortfalls. Other major retailers such as Bed, Bath, and Beyond and Kohls have issued financial warnings concerning their future. Gap recently fired a CEO amid a terrible quarter.
What Happens if the Retailers Go Under?
It is more than likely that these stores will shutter operations and lay off their employees, resulting in broadscale unemployment. With most Americans living from one check to the next, expenses like car payments and mortgages may not be sustainable. This could result in repossessions and foreclosures triggering consumer bankruptcies.
For consumers, spending more money at the pump and at the grocery store is costing other areas of the economy dearly. Inflation has been a controversial explanation for this, but grocery chains and oil companies continue to report surging profits amid soaring prices. Meanwhile, the value of the dollar continues to decline as the Fed tries to print its way out of the problem.
Chain Reactions in an Interdependent Economy
Right now, crypto investors are experiencing a bit of a scare as two major crypto brokerages have filed for bankruptcy and frozen the accounts of users looking to get their money out of a failing investment. In this case, the problem was caused by a Canadian hedge fund that defaulted on a $500 million dollar loan from Voyager. Voyager was forced to file for bankruptcy along with another crypto brokerage called Celsius. Millions in customer investments are now held in limbo as Voyager attempts to right its economic ship.
Crypto is a popular investment for those who do not have millions to invest. With a small amount of money, you can invest and see returns quickly. So as these major companies fall, so too do their investors. The same is true for retail companies and their employees.
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