In a 2005 interview with students at the University of Kansas, Warren Buffett described the challenges of accommodating changing consumer preferences in the retail market: “Retailing is like shooting at a moving target … we would rather look for easier things to do.” Last February, in a move indicative of growing public doubt regarding the retail sector’s viability, Berkshire Hathaway sold $900 million of its equity interest in Walmart, American’s second largest brick and mortar retailer.
Recent market challenges in the retail industry have added credence to Berkshire’s soured opinion of retail investments. More than 300 retailers have sought bankruptcy protection in 2017 alone. Many others have announced store closures and have hit multi-year stock market lows. According to Reorg Research, retail bankruptcies in the first half of 2017 rose 110 percent from the year-earlier period. Notably, distress in the retail sector coincides with favorable macroeconomic conditions: GDP growth, low unemployment, and wage growth for middle- and lower-income Americans.
