The Retail Real Estate Implosion: The Robotics Cometh!

By: Gordon Long | Mon, Feb 17, 2014
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The US just released US Retail Sales details warn of an alarming problem. 2008 may have been a crisis brought on by US Residential Real Estate, but 2014-2015 is likely to see the next wave triggered by US Retail Commercial Real Estate. The Fed, Banks, Insurance companies, REITS and most importantly, the Shadow Banking sector are well aware of the exposure and are preparing accordingly.

What is it they know?

  1. Robotic Automatoin is sweeping retail stores and with it less people and less square footage is being required,

  2. Online Shopping is now mainstream and the excess square footage of brick & mortar retail are a cost disadvantage as competitive discounting becomes paramount in a world of shrinking disposable incomes,

  3. Shadow Banking financing which has silently morphed from 2008, now employs new instruments such as SFVs, CLOs, Rehypothecation and Collateral Transformations which have all the ear marks of 2008, with short duration funding problems. The troubling ABCP paper of 2008 has only been replaced with equally troubling Repo Collateral. There is a 'roll-over' problem on the horizon.

The Bigger Picture - Margin Squeeze on Fixed Costs

Retail Sales Control Group Y/Y and Sequential Change

Jobs versus Sales - More than Hiring for Christmas Sales

This graphic is based on the just published US Retail Sales numbers and is indicative of an "overstored" America.

Core Retail Sails versus Retail Employement

The chart above -- from Neil Dutta, head of U.S. economics at Renaissance Macro -- does an excellent job of illustrating that recent retail sales data just don't square with recent jobs data.

"Something has to give. There is a widening disconnect. Either retailers stick with it and stay confident on the expectations that sales will improve, or they will be forced to cut employment dramatically."

Then I read that Bill Ackrman is dumping all his Commercial Real Estate Holding: What Does Bill Ackman Know About The Future Of Commercial Real Estate? A man that knows JP Penney and the Malls!

But Its more than just a "Mall" Problem

The rate of increase of Total Aggregate Demand is slowing and impacting all types of retail.

It is a Real Disposable Income problem!

Real Disposable Personal Income Y/Y Change (Chained 2009 Dollars)

Video: Looming US Retail Implosion: An Urgent Re-Think Required

25 Minutes with 25 Slides

There is a looming US Retail implosion on the horizon and a complete re-think of the foundation of a 70% US Consumption Economy is urgently required. For thirty years analysts have predicted the demise of the US consumer. They were so consistently wrong that the mantra "Don't Bet Against the US Consumer" became a staple of investor wisdom, similar in reliability to "Don't Fight the Fed!" Both may have lived their useful like?

The US Consumer as the engine of global growth has powered global expansion and credit creation as a direct result of the growth in US deficits (See Macro Analytics on Triffin's Paradox ).

Now at 70% of the US economy, as compared to 50-55% for other developed economies, and less than 35% for emerging economies, the question is no longer a matter of is it sustainable but rather what will be the fallout now the inevitable has finally arrived?

Consensus 2014: WalMart EPS vs. Global GDP

It is clear the US consumer is tapped out a result of the US middle class being 'gutted' with job lose, low salaries, exploding healthcare & educations costs and pensions now an endangered species. However, our Monetary, Fiscal and Public Policies are only making matters worse.

Stock Market Reflectoin of the Distributional effects of QE

Video: The Retial Cre Domino

28 Minutes with 27 Slides

The looming domino in the US Retail CRE (Commercial Real Estate) space due to the advancement of online and robotic technologies are both startling and alarming.

Chart of Jobs at High Risk

Examples of Exploding Retail Service Automation - Will reduce Employment and Square Footage

  1. Store Replacements: Redbox Model
  2. Instore Kiosks
  3. Applebee's "Waiter Terminator"
  4. Smoothies "Automated Dispensers"
  5. McDonalds's "Smart Restaurant"
  6. The "Brown Truck" Store

2013 Restaurant Traffic Growth by Segment

An 'Over-Stored' America

The Retail building boom in America has created yet another bubble - The Stealth Retail CRE Bubble.

Permanent Slowdown of Retail Traffic?

Shadow Bank Financing

The Shadow Banking system has 'morphed' since the 2008 financial crisis. Gordon T Long in the video below explains why Commercial Real Estate financing is presently seriously exposed to a crisis in short term funding disruptions, in a similar fashion to Residential Real Estate prior to the 2008 crisis. He shows the new instruments that are now being used and why they will be the new acronyms of the next financial crisis.

Shadow Banking

The Bottom Line

A potential US Recession could bring the whole US Retail CRE "House of Cards" down. Historically, it should now be a strong consideration, and we have signs of that possibility.

US Q1 2014 GDP Forecast

True Money Supply (YOY%) 1975-2013


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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

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