The US is now on pace to having a record 12,000 store closures by the end of 2019.
The reason Forever 21 bankruptcy filing stings so much is that the retail sector has lost nearly 200,000 jobs since the start of 2017.
It seems as if the retail sector is having its own market correction. So many businesses were in a constant state of new store openings, ribbon cutting, and champagne toasts that they failed to stockpile any cash for a rainy day.
With many consumers maxed out after all that easy credit flowed like champagne, it is now time for companies to pay the piper.
However, it not just that companies are bleeding cash due to heavy rents and debt obligations. There also is this little thing called a trade war going on. The trade war between the United States and China isn’t helping any. But if we really think back, most retailers put themselves in this vulnerable position by spreading themselves too thin.
Chasing after never ending profits in the quest for the retail equivalent of the holy grail: increased annual revenues.
Think Subway’s $5 footlong. The world’s largest fast-food chain closed more than 1,000 stores last year (Subway closed 1,100). Subway started its restaurant purge in full force in 2016, when it had more US closures than openings for the first time in its history. It said it plans to keep closing restaurants as it tries to become more profitable.
There is also a restaurant apocalypse going on as many as closing including Pizza Hut, as they are getting out of the sit-down restaurant business. It’s becoming a strictly carryout and delivery pizza chain, like Domino’s and Papa John’s.
However, these companies boxed themselves into a corner. What happens when easy credit dries up and customers are no longer willing and able to shop? It’s kind of like that scene in Indiana Jones. You know the one I’m talking about.
As most companies have no leverage with creditors after a bankruptcy filing, in many cases they lose equity or control over their companies.
Like what happened to American Apparel. The owner went public and was rewarded handsomely with hundreds of millions in stock. Once the company filed bankruptcy in 2011, share prices went from as high as $15.80 in 2007 to being worth less than 80 cents. The owner had over 800,000 shares of his stock and pretty much 100 percent of his net worth locked up in the company. I’m guessing he never heard of a company called Enron. If so, I doubt he would have so much of his fortune in just one stock. Anyway, what happened next is just heinous. The owner went from $500 million to $0 in net worth once the company went bust.
Some people have no idea how invested an owner is in a company until the tide goes out and see who is swimming naked, which basically means in heavy debt.
In recent retail headlines, stores such as Gap, Charlotte Russe, WetSeal, DEB, Rue 21, Gymboree, Charming Charlie, and Toys’R’Us have all thrown in the towel. What makes Forever 21 stand out in this sea of closures is that the retailer is still owned by the founders. However, they too are having profits squeezed by online shopping and e-commerce giants Amazon and Walmart.
Most retailers in these modern times in the age of Instagram are turning more to debt and becoming highly leveraged as a result. This hurts businesses in the long run. Those who manage to avoid piling on too much debt and stay lean are the ones who manage to stay open and profit.
According to Jeff Spross, avoiding the clutches of private equity can make or break a company. For example, after being bought by a trio of private equity companies in 2004, Toys ‘R’ Us’ debt burden rose from $2.3 billion to $5.2 billion in 2017, while its cash stockpile shrank from $2.2 billion to $301 million.
Simply put, private equity firms take the companies cash in the form of fees and replaces it with debt. Once retailers are unable to sustain the high interest payments on this new debt that was supposedly needed in order to expand operations, then the business goes under.
This wave of bankruptcies is therefore not a coincidence as many retailers were highly leveraged but didn’t file for bankruptcy until the interest kicked in and the bills came due starting in 2019, which will continue through 2025.
The retail chopping block is brutal as store closures can hurt stock prices, brand loyalty, consumer confidence, and retailers bottom lines. For instance, many companies are notifying employees in some cases only days before store closures.
That was the case with Dean & DeLuca in Georgetown as they were riddled with debt and couldn’t pay their vendors. The company was so backed up on rent that it racked up $96,000 in back rent and started get hit by lawsuits from angry suppliers. One funny line in this NY Post article read “Can’t afford that $45 box of cookies at Dean & DeLuca? Neither can Dean & DeLuca.” The domino effect and trickle-down economics also lies in the fact that vendors may go out of business due to Dean & DeLuca’s failure to pay them thus putting more employees out of work and out of a job. The company knew it was bleeding money for years, but only informed employees of its closure less than 72 hours before closing up shop for good. Some of these employees had been with the store since it opened in 1993. After 25 years, these employees got no severance. To add insult to injury, they also defaulted on some employee salaries, which is a double-whammy; no paycheck and no job.
This let’s you know that the employee is the sacrificial lamb that gets slaughtered when a retailer takes all the money out of a company. This feels reminiscent of the rumblings I heard about WeWork before their failed IPO.
According to Scott Galloway, WeWork had numerous red flags:
My goddaughter informed me she’s dating a club promoter, a red flag. Occasionally, red flags marry each other, the Biebs and Hailey Baldwin — what could go wrong? So now, imagine red flags the dimensions of Kansas. Buckle up:
— Adam Neumann has sold $700 million in stock. As a founder, I’ve sold shares into a secondary offering to get some liquidity and diversify holdings. Ok, I get it. But 3/4 of a billion dollars? This is 700 million red flags that spell words on the field of a football field at halftime: “Get me the hell out of this stock, but YOU should buy some.”
— Gross margins are a pretty decent proxy for how good or bad a business is. And this is a sh**ty business.
When the CEO (Neumann) wants to sale so many shares, it gives me pause to wonder why? If you don’t believe in your business (they never turned a profit), then why should I?
One retailer that managed to avoid debt, store closures, and heavy job losses due to avoiding debt and private equity is Best Buy.
Therefore, it is a simple recipe, kind of like KFC’s Kentucky Fried Chicken 11 herbs and spices with a secret ingredient (white pepper in case you were wondering), that will keep retailers or yourself out of the evil clutches of debt. I will share it with you. No debt + tons of cash = solvency.
You cannot go bankrupt if you owe no one.
You can put that last sentence on my tombstone. Like Drake and 2 Chainz, when I die bury me inside the casket that paid for with cash, put my money in the grave because in the next life I’m trying to stay paid. But seriously, I’d rather you expand your business or wealth portfolio slowly with cash than quickly with debt.
Always remember that patience is not only a virtue, but it is how you can avoid debt through delayed instead of instant gratification, which is how you get and stay rich.
My goal here is to help you along your wealth journey. I hope this post helps you do just that. You are not alone. Have a question? Drop me a line.
Til Debt Do Us Part is a Canadian television series that follows couples that are going through financial crisis and financial expert, Gail Vaz-Oxlade, comes in to help the couple find solutions.
The series ran for over 100 episodes from 2005-2011. It also had a spin-off called Princess. She teaches couples to go from red to black and gain control over their money.
The show would air right after the Suze Orman show during its run on CNBC. Read my post Dom Perignon Taste on a Budweiser Budget to see how it all went down on Suze’s show.
#1 REASON COUPLES BREAK UP
Money is the number #1 reason couples break up. She visits couples weekly and gives them challenges to help with their finances. Then at the end of each episode, after about 4 weeks, she awards the couple with up to $5,000 dollars to help them get out of debt.
CUT THE CHEQUE
By far the best part of the show, in my opinion, is when at the end of one month, Gail Vaz-Oxlade gives the couple a cheque for an amount up to $5,000, depending on their attitudes and how well they did during the challenges. Keep in mind, couples could get less and some have. One of the lowest amounts I have seen her give was $3,000, which is a 40% reduction of the prize money.
The show was so popular that a 52-Week Life Planner was released based on the television series and offers day-by-day, step-by-step strategies and tips for successfully managing household finances.
This reminds me of a Tom Holland interview he did for Spiderman talking about how Anthony Mackie always says, “cut the check.”
If you have never heard of the show Til Debt or can’t remember it, no worries, I will take you back down memory lane tonight.
WHO IS GAIL VAZ-OXLADE?
“We feel good when our homes are bright and shiny, put a little elbow grease into your money and it’ll glisten too.” – Gail Vaz-Oxlade
Gail Vaz-Oxlade is a financial writer and was a columnist for numerous publications as a freelancer including Yahoo! Canada Finance. She has helped people from high finance to low-income solve their money problems. Eventually, she became a television personality due to all of her work in finance and that is how the show Til Debt came into existence with her as the host.
She has written numerous books on the topic of finance. I have actually read one of her books called Debt-Free Forever.
Gail has a no-nonsense attitude when it comes to money. And that is what makes her so good at what she does.
FOR THE LOVE OF JARS
“You can have everything you want. All you need is a plan. And how do we spell plan? B-U-D-G-E-T!” – Gail Vaz-Oxlade
Watching the show was very interesting. One recurring theme was the jars. Gail advocated for couples to live on cash.
Every single episode, you got cash jars. You would put in a certain dollar amount. When you spend, you write it down in the budget binder cause cash slips through our fingers easier than that snail did with Julia Roberts in Pretty Woman.
Some couples were taking out cash at the ATM from their bank accounts or doing cash advances, which Gail said she could not track so we don’t know where the money went. When it’s gone, it’s gone. Without writing it down or keeping receipts, there is no other way to track cash. So, jars it is.
MONEY LESSONS FOR GAIL
Gai loves cash and hates banks. She thinks they are bleeding people dry slowly with their interest and fees. Gail says banks are wolves in sheep’s clothing. The only way this will change is to teach financial literacy in school. I say start in elementary when they are old enough to start asking for a $1 lollipop, it’s time to start the finance lessons.
This is the secret recipe to building wealth: You need to make more money and you need to spend less money.
Here are 3 lessons that Gail taught me: (1) both partners need to manage the money, (2) no retail therapy, and (3) debt repayment takes time.
LESSON ONE: GAIL ON COUPLES MANAGING MONEY
Do not have only one partner manage the finances.
“It’s not unusual for one person to assume the nitty-gritty of daily finances…. The problem is that when one person is excluded, or totally abdicates responsibility, it means the other can mess things up with no monitoring or grow resentful at always having to do the detail…. Taking turns managing the chequebook, and having regular conversations so that both of you are clear about what’s going on, means you’re both in the know and working to the same ends. It also means that one person doesn’t have to deal with all the crap, while the other merrily laughs off the stress and frustration with, ‘You’re managing the money, so this is your problem to deal with.’ (Yes, there are dopes who say this.)”
Always know what is happening with your money. I don’t care who signs the check and put it in the envelope. Just make sure you lick the stamp. Be involved. Ask questions. Don’t be in the dark.
It’s kind of like that scene in Charmed in the episode Be Careful What You Witch For. Remember that scene in the beginning, after the opening credits. I want you to be skeptical like Phoebe. Always know who you owe and how much. Nothing is for free.
The conversation went like this:
Phoebe: I don’t get it you’ve been stuck in that bottle for two hundred years then someone finally sends you to us and you’ve no idea who licked the stamp? I find that very hard to believe.
Genie:What? I don’t get it you win the lotto and you’re asking for explanations?
Piper:Actually we’d like to know who to send the thank you note to.
“Plastic is anesthetic — it dulls the pain, and then what happens is you just keep waiting for the next fake high.”
And don’t I know it. I had a huge shopping problem for years. It was done as a way to dull the pain of the things going on around me – low-income, working full-time, going to college – I was a mess!
I had some pretty terrible managers when I was younger too. All the stress was getting to me. I had to find a way to cope, but shopping was not it. As I got more mature, I found ways to de-stress that were cheaper or free.
I have said it before that credit is seductive and addictive. It should not be used to replace your emergency fund (liquid cash). However, if you do, be strategic and use credit wisely and sparingly.
“A goal without a deadline is just a dream.” – Gail Vaz-Oxlade
Slow and steady is the way to repay debt.
“One step at a time. You are on your way. Expect challenges. Keep your goal where you can see it.”
You better believe it. If it took you 8 years to accumulate the debt, thinking you can pay it off in 3 months is delusional. See my post Getting out of debt one step at a time.
The good news is that once you recognize you have a problem with debt, then you can work on solutions. I have noticed that generally 2-3 years of cutting back and attacking debt is usually enough time to pay off most if not all of your consumer debt except the mortgage and student loans. After 5-7 years, the only debt left is usually the mortgage. That is a small price to pay for freedom.
Money can’t buy you love. But keeping love alive without money can be pretty tough. In fact, ninety percent of marriage breakups are due to money problems. And to get advice on how to manage money usually costs money! Til Debt Do Us Part, is a series that offers tough-love solutions to those willing to face their financial troubles head on. In each episode we meet a couple in crisis. Some are on the verge of bankruptcy, hounded by creditors or facing eviction. Others are just getting by, but in the midst of a personal meltdown or relationship breakdown because of money issues. With the sensitivity of a therapist and the toughness of a CFO, our host, renowned financial author and columnist, Gail Vaz-Oxlade reveals what she’s found in a couple’s finances – and then she’ll dig a little deeper. She asks some tough questions and then they’ll be forced to face reality. Where will it end if they continue on this rocky road? To get things back on track, Gail takes control of their finances …
This show was very eye-opening in how people managed their finances. Many did not have a clue what was coming in and going out. Gail would come in with her screen shots of the couples bank accounts and spending and give it to them straight.
Many times the wives would burst out in tears after seeing how much debt the family was actually in. Lots of couples were in over their heads. Some so deep in debt they had to consider selling their house, or worse, bankruptcy!
Some couples did not want to make any changes. Even though they were debt up to their eyeballs. These people needed to get their priorities straight. Much like Hermione, in Harry Potter.
Here is the show’s Intro and theme song along with a promo. This is just a taste, a light sampling, of what you are in store for with this show.
There are 2 episodes that stand out for me. They were called The Worst Family Ever and Love Affair with Luxury.
MONEY WORRIES CAN CAUSE SLEEPLESS NIGHTS
In the S03E13 entitled, “The worst family ever?” One couple were living in the wife’s family basement for about a couple of years. They spent with reckless abandon. Oh, the couple popped bottles night and day. Especially, after moving out and buying their own home for about $225,000. That’s not bad. What is bad is that they saved zero dollars while sponging off her parents.
Then, to make matters worse, they threw non-stop parties at their house for friends and family. This was obviously all to make themselves look good to friends and family. In Yoda speak, so concerned with appearances they are.
“Happy people don’t worry about what other people think about them.” – Gail Vaz-Oxlade
OUT OF CONTROL SHOPPING FOR BABY BUT THE KIDS ARE ALRIGHT
In addition, they expanded their family and had a son, but financially were unprepared for this. At one point, the wife was spending $1200 a month outfitting junior! I couldn’t believe it. What is she buying Versace onesies? Get real. A baby doesn’t care. They just want to be warm, feed, and dry.
This couple were overspending by the tune of $4,100 a month! Holy spending gone bonkers, Batman!
Fun Fact: For those of you unfamiliar with that Batman line, here is where it comes from. The Batman television series from the 1960’s. Batman was American live action television series, based on the DC comic book. It starred Adam West as the titular character and hero Batman and Burt Ward as his sidekick Robin.
It was also turned into a cartoon series. Here is Robin at his finest with his sayings. Hilarious!
I decided to post it so you won’t ever have to get the tongue lashing that Penny got from Sheldon on an episode of The Big Bang Theory about Batman at 2:48 into the video.
It was about The Lord of the Rings. Even Raj used a Holy Robin saying in there!
In this next video, Sheldon gives a fun fact to Raj. Now, you know where I get it from.
Now, back to the story.
The way the couple on the show were able to overspend like that, drumroll please…the credit cards!
When Gail comes along they are so bad she tells them they have to sell the house. They flat out said they could not sell the house. Even though they are on the path to $1.3 million in debt and possible bankruptcy! Gail, at one point in the show, tells them they are the worst couple she has had on the show and that she had a few sleepless nights worrying about how to help them out of this situation. Coming from Gail, that’s scary.
The way it went down, it reminded me of that scene in The Chipmunk Adventure, when Jeanette and Eleanor was telling the Arabian prince that Brittany spends money like a drunken sailor and Brittany got mad. Hilarious. I just so happened to find the footage of that particular scene and the movie on YouTube. Hope you have fun watching! No need to thank me. Like Dean Winchester says, “You’re Welcome.”
SHOULD YOU FINANCE A $100,000 CAR?
“Change brings challenges, learning, and a sense of New. Change is full of promise.”- Gail Vaz-Oxlade
In the S04E03 entitled, “Love Affair with Luxury,” which aired March 6, 2008, is the gold standard of delusions of grandeur when it comes to money management. The wife, Simone, is a champion shopper and a spendthrift who manages to make 53 shopping trips in a single month! That’s nuts. Even though she’s on maternity leave, a luxury car is next on her shopping list.
The only reason the couple is able to afford such luxuries is because they have each other’s incomes. The minute one person’s income is gone or reduced, i.e. disability or divorce, the whole house of cards comes tumbling down faster than the stock market has in the last 30 days.
Frank and Simone’s combined $110,000 annual income is currently curbed by Simone being on maternity leave. Simone is addicted to what she believes she needs to keep up appearances in every respect, which includes working out at the gym, and spending money on “stuff” for herself, such as clothes, getting beauty treatments of various kinds, and having a beautifully appointed house. A $125,000 new car is next on the list. Simone, however, states that she would never do anything that would place her family at risk. But Frank doesn’t realize he is just as guilty, spending money on his electronics, which includes six large television sets in their house of four people, including one infant. This spending has resulted in $55,000 in consumer debt so far. They constantly fight about money, something having to give if their marriage can overcome this issue. As such, Gail issues them challenges largely focusing on dealing with their root problem, namely their addiction to luxury, this focus which not only entails them doing the challenges, but understanding why she has issued these challenges.
At one point in the show she says, “we can finance $100,000 can’t we.” For a car no less! If you have ever read this blog, you know I can’t stand cars for the simple reason that they can keep you in debt forever. You could spend a couple hundred grand on cars in a lifetime. You know how much interest you could earn on $200,000! Here are just a few on my posts on my beef with car loans below.
Money is a tool we use in the present to create the reality we want in the future. Learning about finance is a good start. Practicing good money habits and teaching your kids to understand the concepts of money – budgeting, saving, and spending – you help create their reality.
So, I want to always stay in control of your…I will now end this post in the last words of the Til Debt Do Us Part theme song, money, money, money, money, money, money, moneyyyy!
