American International Group Inc. (AIG) Chairman Steve Miller, who spent his career helping hobbled companies survive, said retailers pressured by online competitors are among the most vulnerable investments.
“The next industry that is under enormous threat is the brick-and-mortar retailing business,” Miller told Tom Keene, Scarlet Fu and Sara Eisen on Bloomberg Television’s “Surveillance” today.
Online retailers led by Amazon.com Inc. have been putting traditional stores under pressure, forcing changes in their operations and pricing. Target Corp. (TGT), the second-largest U.S. discount retailer, and consumer-electronics seller Best Buy Co. both announced permanent policies of matching rivals’ online prices this year to win back customers who had fled to Internet-based competitors.
A Bank of America Merrill Lynch index of junk-rated retailers including Best Buy and J.C. Penney Co. yielded 6.85 percent yesterday. That compares with 6.75 percent for the $1.18 trillion of bonds in a broader high-yield index.
“My wife, yesterday, instead of going one block away to Home Depot to get a household item went online to Amazon to have it delivered the next morning,” Miller said. “That to me said it all, that if you have a big investment in brick and mortar you are under threat.”
Miller became AIG chairman in 2010 and worked with Chief Executive Officer Robert Benmosche as the insurer divested non-U.S. units to simplify the company and raise funds to repay a taxpayer rescue. He titled his autobiography “The Turnaround Kid,” and previously oversaw the bankruptcy of auto-parts supplier Delphi Corp. and helped Chrysler Corp. return to profitability after taking government loans in 1980.
AIG had about $2.9 billion at risk tied to retail properties in its $14.7 billion commercial mortgage loan portfolio as of June 30, the insurer said in a filing. That compares with $4.9 billion for offices and $2.3 billion for apartments.
Miller said the insurer has limited ability to charge more for coverage and won’t settle for unattractive rates to draw market share.
“We do not have pricing power, except to the extent we can prove we can give better service than our competitors,” he said. “But the main thing that will distinguish us is that we select the right risks and price them right with our premiums. And if that means that we lose some business elsewhere, so be it.”
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