Meet retailing’s debt zombies

Reagan era appointee David Stockman is no fan of the current administration or the Federal Reserve’s long-running easy money policy and to make his case against the flawed strategy he singles out four of the biggest names in department store retailing.

Stockman is the Reagan era director of the Office of Management and Budget who became a Wall Street executive and now regularly opines on the troubled state of the economy and looming dangers caused by nearly eight years of zero interest rates he contends have produced all manner of distortions in the economy.

He laments that despite a tepid pace of consumer spending there is a rampage of borrowing to open retail stores, even as online competition accelerates, and buy back stock.

“Debt financed retail leases are so cheap that new capacity never stops coming,” according to Stockman. “At the same time, some of the nation’s largest retailers, faced by withering competition from what amounts to Fed subsidized supply expansion, have been loading up their balance sheets with the very same kind of cheap debt in order to buy back stock at rates which far exceed their faltering net income.”

Four retailers singled out for Stockman’s derision include J.C. Penney, Macy’s, Kohl’s and Sears Holdings. To highlight the distortion caused by zero interest rates, Stockman notes that, during the 10 years between 2005 and 2014, the four retailers spent $34 billion on stock buybacks and dividends and generated cumulative net income of only $13 billion.

“In a market where the price of debt is not falsified and where the C-suite is not reward for mortgaging company balance sheets to feed the fast money speculators and thereby goose short-term share prices and their stock option winnings, nothing remotely this reckless could happen,” according to Stockman.

For more on his perspective of J.C. Penney, Macy’s, Kohl’s and Sears Holdings, companies he refers to as debt zombies, click here.