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Analysis: Retail Funk: Stores Facing Biggest Challenges Since Recession

It’s starting to look a lot like the Great Recession redux for retailers, according to an analysis by the Associated Press Tuesday. More than twice as many stores have closed this year than at the same point last year. Bankruptcies are far outpacing last year’s rate. Retailers slashed jobs at the sharpest pace in seven years this spring. And retailers collectively could report the biggest drop in first-quarter profits since 2009. This time, the culprit’s not the economy but shoppers whose habits have changed profoundly and permanently, as they shop online more and look for deals. The results this week from department stores like Macy’s, Kohl’s and J.C. Penney are expected to illustrate the latest damage by the spending shift and the dominance of Amazon. “The first-quarter reports will show how difficult the mountain retailers will have to climb [is],” said Ken Perkins, president of research firm Retail Metrics LLC. Perkins estimates that the 114 retailers he tracks will see an average drop of more than 5 percent in first-quarter earnings, marking the second straight quarter of declines and third in the last six quarters. But he thinks there’s even a chance they could surpass a 7.1 percent drop in the fourth quarter of 2013 that would make it the worst quarter since 2009. Moreover, 22 percent are expected to post losses, the highest percentage since the second quarter of 2009. And he forecasts that nearly half of the retailers will see total sales revenue fall, nearing the level of the last downturn.

Analysis: Profits from Store-Branded Credit Cards Hide Depth of Retailers' Troubles

Department stores and big-name retailers are increasingly making the hard sell to sign up customers for credit cards at the register. The store cards promise deep discounts on clothing, furniture and electronics, and are tough for shoppers to resist. For some retailers, those credit cards are not just a sales tool, but also an essential way to bolster their struggling businesses — a trend that has worrisome implications for the industry and its customers, according to an analysis in the New York Times DealBook today. The store cards, with steep interest rates that are often twice that of the average credit card, generate a rich profit stream for retailers at a time when many of America’s traditional retailers are losing the battle for sales against Amazon and other e-commerce rivals. Those profits on plastic are helping obscure the true extent of the industry’s pain, a major pressure point for a piece of the economy that employs one in 10 Americans. Weak consumer spending, digital competition and changing shopping habits have already roiled retailers. In recent months, the industry has shed tens of thousands of workers, making it one of the job market’s weakest links. But the businesses may be in worse shape than they appear, since store cards are a shaky foundation. If more consumers fall behind on their payments, the profits could dry up, intensifying retailers’ troubles.

Trump Administration, Senators Put Fannie, Freddie Overhaul Back in Play

The Trump administration and a bipartisan group of U.S. senators are working to address an issue that has gone unresolved for nearly a decade: how to overhaul Fannie Mae and Freddie Mac, the mortgage-finance giants the government took over in 2008, the Wall Street Journal reported today. The Senate Banking Committee has begun behind-the-scenes work on the issue of how, exactly, to revamp the companies. The senators want to develop a framework to decrease the government’s outsize role backstopping the nation’s $10 trillion mortgage market. It remains unclear whether policymakers can overcome philosophical differences and hammer out a final deal. Conservative Republicans have called for a private market with no new federal guarantees. Some centrist Republicans and many Democrats have said a federal role is needed to preserve liquid markets for the popular 30-year fixed-rate mortgage that drives home buying. Nevertheless, Senate Democrats say that a Fannie and Freddie overhaul would garner much more bipartisan support than other GOP priorities, such as rollbacks to Dodd-Frank law financial regulations.

Credit Unions Ask CFPB to Limit Business Loan Rules

As the CFPB contemplates regulations governing small business lending, credit unions are asking the agency to ensure that any rules do not conflict with NCUA requirements and do not require data collection that could be misleading, the Credit Union Times reported today. The CFPB held a field hearing on small business lending in Los Angeles Wednesday, and agency officials said that they are soliciting advice on how to collect data on it — a requirement under the Dodd-Frank Act. “Given the importance of small businesses to our economy and their critical need to access financing if they are to prosper and grow, it is vitally important to fill in the blanks on how small businesses are able to engage with the credit markets,” CFPB Director Richard Cordray said. NAFCU is asking the agency to exempt credit unions from any new rules that require disclosure of business loan information. “Credit unions are bound by defined fields of membership, which means that MBL activity could be limited by geographic restrictions, employer groups, or other charter-specific language that defines who the credit union may serve,” said Andrew Morris, NAFCU’s regulatory affairs counsel. As a result, Morris said, any information collection that mixes credit union business lending data with the data gathered from banks could be misleading and unhelpful. Morris said if the agency is unwilling to exempt credit unions, then data collection should be coordinated with the NCUA and the Treasury Department to ensure the data is not misleading.

Op-Ed: WTO Review Is Perfect Opportunity to Tackle Currency Manipulation

President Trump recently announced that he has tasked Commerce Secretary Wilbur Ross with undertaking a broad-based review of the U.S.'s membership in the World Trade Organization, according to an op-ed in The Hill today. Such a review is long overdue, but it should be expanded to include the U.S.'s membership in the International Monetary Fund (IMF) and a review of the U.S. law that identifies and sanctions currency manipulation by our trading partners, according to the op-ed. The WTO is woefully slow in addressing concerns about unfair trade practices. The U.S. should create a special WTO trade assistance counsel within the office of the U.S. Trade Representative for U.S. companies and industries to file complaints assisted by attorneys, free of charge, against foreign competitors they allege to be cheating. In the meantime, the U.S. should offer loans, credit and unemployment benefits to support the continuation of the business by the complainant company or industry until such time as the case is resolved. But Secretary Ross’s review of the WTO should go further, according to the op-ed. The U.S. should insist that the IMF adopt WTO-style sanctions on foreign currency manipulators or that the WTO expand the definition of an export subsidy to include currency manipulations. Secretary Ross will need to take a bit more on his plate if he hopes to return the U.S. to a policy of fair trade among its trading partners, according to the op-ed.

Commentary: Economists Say President Trump's Agenda Would Boost Growth — a Little

One of the most-watched economic forecasts in Washington will come later this month when the White House releases its budget, according to a commentary in the Wall Street Journal today. Here is what it would look like if it were done by economists recently surveyed by the Journal. Over the course of the next decade, the estimated cost of many items on President Donald Trump’s wish list will depend critically on his own team’s projections for economic growth, unemployment and interest rates. Per longstanding custom, however, the White House budget differs from most economic forecasts in one crucial way: Most forecasters estimate the path for the economy they believe is most likely, taking into account that many political promises will never come to fruition. To establish a baseline of what a reasonable forecast might look like under Trump, respondents to the monthly survey of forecasters provided their own estimates of the economy if all of Trump’s initiatives were enacted. White House officials have reportedly considered penciling in growth rates as high as 3.2% a year. But the survey respondents — a mix of academic, financial and business economists who regularly produce professional forecasts — say numbers so high will be hard to attain, because the policies under consideration just might not pack that kind of punch. Key Trump initiatives, which face a challenging road through Congress, include overhauling the health care system, simplifying the corporate tax code, cutting income taxes, rewriting regulation and investing in the nation’s infrastructure.

ABI Podcast: A Practical Guide to Bankruptcy Valuation Authors Discuss Key Updates in Their New Second Edition

In ABI's latest podcast, ABI Resident Scholar Andrew Dawson talks with Israel Shaked of the Michel-Shaked Group in Boston and Robert F. Reilly of Willamette Management Associates, Inc. in Chicago about the ways in which they have expanded on valuation in the bankruptcy context in the latest edition of their comprehensive guide A Practical Guide to Bankruptcy Valuation, Second Edition — and why the art of valuation is more important than ever in insolvency practice. Click here to listen to the podcast.

To purchase A Practical Guide to Bankruptcy Valuation, Second Edition, please click here.

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