The more the press talks about recession, the more people who watch and read media think we are in one. We as human beings wish to be rational creatures, but emotion plays a major roll in how we see our future. That’s why I was concerned by two articles published over the last two weeks.
One was in the July 25, 2022, issue of CSA. Written by Editor-In-Chief Marianne Wilson, the article has the stomach-churning headline: “Study: Nearly 60% of small retail businesses at risk of closing.”
The other is an interview with former Toys R Us C.E.O. Jerry Storch. It too has a troubling headline: “Record retail bankruptcies will happen by fall, former Toys’ R’ Us CEO warns.”
Let’s look at quotes from both articles.
Nearly half (47%) of small business owners said their businesses are in jeopardy of closing by the fall, according to a survey by Alignable, the largest online referral network for small businesses. The figure is up 12% from last summer, when 35% of businesses said they were on the brink. The poll was conducted among 4,392 small business owners in June and July.“Study: Nearly 60% of small retail businesses at risk of closing,” marianne wilson, CSA, July 25, 2022
He stressed that he believes mom-and-pop stores will experience a “decimation” on Main Street, but that “those chains that have been struggling for years strategically and never got it right” are also “going to have big problems as we round the bend here after the holidays.” “So it’s going to really bite as we get to holidays and beyond.”“Record retail bankruptcies will happen by fall, former Toys’ R’ Us CEO warns,” Talia Kaplan, Fox News, August 3, 2022
There is, of course, reason for concern. We read daily about heavy inventories, major retailers laying off executives (Walmart), and cutting prices (Target).
I say this, first, because of the nature of the survey Ms. Wilson cites in her article. The survey is asking retailers to predict the future while they are emotionally exhausted.
They are asking retailers who have been battered by, as Ms. Wilson puts it, “record-breaking inflation, higher-than-normal gas prices, rent hikes, labor issues, a still-broken supply chain, reports of reduced consumer spending, elevating interest rates, recessionary fears, and the fact that several businesses have not recouped losses from 2020-2021 yet.”
These people are exhausted, and they are not going to give favorable responses. Morale is low, so their vision of the future is as well. Nevertheless, small retailers are a tough group of people, and though their heads are down now, they have the proven moxie to muscle their way through.
Mr. Storch’s argument is more his analysis of current business conditions and, in particular, the Fed’s decision to cool down the economy. He is correct that lower income consumers have cut back on purchasing. As Storch puts it, “So they’re kind of killing the patient to cure the patient,” he continued, adding that “there is no soft landing here, it [inflation] is not transient, and it is not good.”
I have a lot of respect for Jerry Storch. He did an excellent job at Toys R Us under very challenging conditions. Yet, to my knowledge, he has a history of being involved with large entities. I think, therefore, he is missing a piece. Though we are all susceptible to the same laws of economics, the relationship between a small business owner and his or her store is personal. It’s like a family member, and you don’t give up on family. It’s emotional.
Finally, toy retailers are less susceptible to economic downturns than other retail channels. Toys, though not recession-proof, are certainly recession resistant. Parents will spend money on toys at the same time they are cutting back elsewhere.
Yes, there will be some economic casualties; there always are. However, I predict that that scary headline aside, most retailers will come through 2022 to prosper another day. Let’s hope I am right.