U.S. stock futures dip on retail closures

Published On: February 5, 2020Categories: Stocks & Shares1.8 min read

U.S. stock futures tumbled in overnight trading as investors reacted to political news and the closing of Macy’s stores

U.S. stock futures tumbled in overnight trading Tuesday, as investors reacted to political headlines and the closing of hundreds of Macy’s stores.

The dip in U.S. stock futures comes as retail store closures continue.

Futures contracts for all three major U.S. indexes traded modestly lower Tuesday evening. Dow Jones futures were off by as much as 97 points before paring losses later in the session. At press time, the Dow’s March contract was down 31 points, or 0.1%, to 28,758.00.

Futures on the S&P 500 Index fell 0.2% to 3,293.50. Nasdaq Composite futures also tumbled 0.2% to 9,338.00.

American retailer Macy’s announced Tuesday it plans to close a fifth of its department stores and slash 10% of its corporate staff over the next three years. That amounts to 125 stores and roughly 2,000 corporate workers.

Following the massive restructuring, Macy’s said it will keep running roughly 400 of its namesake locations.

While e-commerce gets much of the blame for the decline in physical stores, there’s a lot more to the story. The aggressive over-expansion of shopping malls, rising rents, the implosion of leveraged buyouts and cash-strapped consumers have all played a role. These factors have led to a decline in both revenue and profitability, which partly explains why so many retail stocks struggled at the end of 2019.

Since the Federal Reserve expanded monetary policy after 2008, the amount of retail debt considered risky has risen sharply. Fed policy enabled retailers to borrow lots of money at near zero interest rates, which helped to propagate an enormous retail bubble.

It’s no surprise that most large retail bankruptcies since 2012 have occurred at private equity-acquired chains. According to some estimates, private equity takeovers have killed 600,000 retail jobs since the financial crisis and over a million more could be at risk.

Combined with the meagre wage growth of American workers, especially before the Trump administration took over, apart from a number of structural issues.

That’s not to say e-commerce hasn’t played a role. It most certainly has. Big-box retailers have been losing shoppers to Amazon and eBay for years. The smart ones, like Walmart Stores, have invested heavily in technology to deliver a positive online shopping experience for their customers. Others like Sears and J.C. Penny failed to do so.

About the Author: Jonathan Adams

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