Wednesday, May 20, 2020

We Owe Harder.

With the shuttering of Neiman Marcus, J. Crew and J.C. Penney, every digital person and his digital cousin will go on about the demise of bricks-and-mortar businesses against the twin onslaughts of the Covid-19 pandemic and Amazon. But I’d bet if you polled 100 people and asked them what per cent of retail sales were online, the majority of the respondents would say 50% or more.

The fact is, 20 years into the digital revolution, only around 10% of sales are online. One dollar out of ten.

And if you think about the three retailers I mentioned above, none of them had a definable reason for being. Neiman-Marcus was a toy-store of the super-affluent who had more money than sense. J. Crew sold ordinary clothing for about three times the cost as competitors. And J.C. Penney lurched to and fro more times than a small ship in a big wind—unable to make up their mind who they are, what they sell and who they sell it to.

There’s more to the story that the digital doomsday people will omit. In fact, what’s afflicting much of retail is not terribly different from what’s affecting the industry formerly known as advertising.


J. Crew was in a $1.7 billion dollar hole and Neiman Marcus was in $5 billion deep. That’s money owed to private equity firms. And according to the failing New York Times, “J. Crew and Neiman over the past decade paid hundreds of millions of dollars in interest and fees to their new owners, when they needed to spend money to adapt to a shifting retail environment.”

What’s more according to the Center for Popular Democracy, 10 of the 14 largest retail chain bankruptcies since 2012 involved companies private equity firms have acquired. Of course while pensions are raided, and workers are fired by the thousands or tens of thousands, private equity firms get paid.

According to the Times, Americans for Financial Reform, a consumer advocacy group, estimated that J. Crew had paid more than $760 million in dividends and fees to its ownership group since 2011.

Now let’s leave the mall and go onto the private equity/holding company mauling of Madison Avenue. We can call it “The Maul in the Hall.”

According to a piece in Forbes by Avi Dan, from September, 2019—six months before the pandemic, “The holding companies, and especially the European-based ones, Publicis and WPP, are retreating and shrinking their footprint…”

Dan continues, “Both holding companies carry a huge debt load that will gobble up oxygen from their ability to support their assets, and especially the creative agencies. If economic conditions turn even slightly adverse, and they can’t service their debt obligations…”

This was written as I said, pre-pandemic.

“WPP, too, is burdened by a gargantuan debt load, even more so than Publicis’. Its earnings fell a jaw-dropping 25% in the last twelve months … The idea of a big consultancy such as Accenture or Deloitte coming in with a mammoth bid for WPP is not so far-fetched.”

As Joseph Heller wrote so many years ago, “Depreciating motels, junked automobiles, and quick-food joints grow like amber waves of grain.” And so it goes in our industry. It’s been picked at as if by a buzzard.

It’s no longer run by people who love a good commercial or even love seeing their clients achieve things because of advertising, it’s run by people slicing and dicing currencies, skimming off their 47% and cashing out with tens if not hundreds of millions.

What makes advertising interesting to you and me, or what makes retail interesting to retailers is completely immaterial. The only thing that matters is generating enough revenue to pay off the debt the money people have piled on, so they can take their vig and close off the wretched refuse on these teeming shores.

I’ve seen it.

I’ve lived it.

I’ve suffered through it.

I can’t see how it doesn’t happen again.

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