The Big Short: Version 2
There is a new bet on Wall Street that is beginning to gain steam. The bearish short against Commercial Mortgage Backed Securities (CMBS), specifically securities backed by loans taken out by shopping mall operators, is being coined as the next Big Short.
Future Shop, owned by Best Buy, was dissolved in March 2015, followed by the closing of 66 stores across Canada. (Wikipedia)
Target Canada aggressively expanded into 133 locations across Canada from March 2013 to January 2015, whereby it filed for bankruptcy, and closed all of its Canadian locations by April 2015. (Wikipedia)
Over the past 5 - 10 years, there has been a swift and steady movement away from the existing "brick and mortar" retail stores towards online shopping. This has been very apparent to retailers and mall owners as traffic counts continue to decrease year after year in their stores, while online purchases and growth in online retailers such as Amazon continue to climb exponentially. "In 2010, there were 35 million visits to malls, according to the real-estate research firm Cushman and Wakefield. By 2013, there were 17 million visits — a 50% decline." (businessinsider.com). Department stores such as Macy's, JC Penney, Sears, Zellers, and Target, to name a few, are feeling the pinch due to the sheer size of their stores and the amount of product stored on-site. "Macy's recently announced it is closing 100 stores, following similar announcements from Sears, Gap, and Abercrombie & Fitch." (businessinsider.com).
An abundance of data exists today that supports this shift in the retail sector, and so it is easy to see why some Wall Street speculators are setting their eyes on the mall as the next bubble to burst. However, as the Bloomberg article published March 13, 2017 points out, the scope of this short is no where near as large as that of the subprime mortgage crisis in 2007/08, in fact malls account for only a small portion of the $365 Billion CMBS market. Still, there is enough interest from bears who believe that the death of the mall is inevitable and the loans against them will start piling up.
What do you think is the future of the mall in North America? Can it survive in its current capacity or what changes need to be adapted for it to survive?
Sears announced a second wave of store closures on Wednesday (Jan. 4th, 2017), bringing the total number of closures scheduled for early 2017 to 150. The company will shut down 108 Kmart stores and 42 Sears stores by April, according to an internal document obtained by Business Insider. (businessinsider.com)