I think it is clear that Western consumers are in the midst of a generational downshift in consumption. “Spend less and save more” is the new religion of the west and this behaviour is likely to continue en mass for the next several years while debt is slowly paid down and equity grows back.
For the over-built, over-levered retail sector (shopping, restaurants, travel) I believe this trend will demand a much leaner business model. Only those businesses that can slash costs, close stores and find there way to profit within the “new normal” revenue numbers will be able to survive.
My friends at Tech Ticker interviewed retail analyst Howard Davidowitz this week, and despite signs of improvement in consumer confidence and retail stocks, Davidowitz believes that consumers and retailers are now in a death spiral that will be a drag on world growth long into the future.
After a decade of over-building, we are now in the midst of a massive downsize that is needed across America and Canada as well as most other countries in the world including exporters. It will mean smaller profits, more job losses, more bankruptcies, more loan losses, depressed rents, lower commercial property values and less demand for new construction and all of its trades and materials. This is a seismic shift that will continue to impact most sectors of our economy. Those hoping for a miracle cure to the “correction” needed here are sadly deluded.
Davidowitz: “We are going to close hundreds of thousands of stores and thousands of shopping malls.”
The good news is that living people will still consume some things. And the destruction of the present over-supply will eventually lead to tighter supply and the next wave of demand expansion. But first we have some years of clean up to do…
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