‘Retail apocalypse’ is just beginning

Sir, – In addressing the recent wave of closures and bankruptcies in traditional retail in the US, Suzanne Lynch focuses on the growth of online shopping ("Online retail therapy puts squeeze on America's high-street businesses", November 18th). Yet, as she highlights, online purchases accounted for just 10 per cent of all US retail sales last year.

While the growth in online shopping is undoubtedly a factor in the current struggles of traditional US retail, it is not however the only factor and not even necessarily the chief factor. Over the past decade and more, private equity firms have engaged in leveraged buyouts of many US iconic retailers. In the process of doing so, they have loaded them with high levels of debt, while depleting the acquired retailers’ cash balances via stock buybacks and payments of high levels of compensation and fees to themselves.

As we saw closer to home in the case of Clerys, they also engage in financial engineering. Stripping the operating end of the business from the property end of the business enables further financial advantages to accrue to the private equity firms. This further erodes the operating side of the business as a result of the substantial costs in the form of rental and other fees it then incurs to the property owners.

The net result of such private equity involvement in traditional US retail is that the acquired retailers struggle to survive as they try to cope with increasingly unsustainable debt levels and eroding cash reserves. They may eventually be forced into liquidation leaving substantial liabilities. Still, as we saw locally with Clerys, the private equity firms tend to walk away as net winners while workers, suppliers and communities emerge as the losers.