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Will Chains Extend Their Retail Dominance Over the Next Five Years?
The strong get stronger and the weak close their shops and go home.
That’s one of the takeaways from a new UBS report covered by Business Insider, CNBC, Forbes and other media outlets.
The report points to 40,000 stores shuttered by small retailers over the past decade and chains adding 17,000 over the same period. That trend is expected to continue as major players in the dollar, discount, home improvement and mass channels continue to grow store counts. Digital natives with brands such as Warby Parker, Vuori and others are also expected to add to their store counts.
UBS forecasts that somewhere between 40,000 and 50,000 stores will close in the U.S. by 2028, down from its previous forecast of 80,000 locations. UBS places the total number of stores, excluding gas, at around 880,000. The financial services fund based its projections on four percent annual growth.
The financial services firm expects retailers selling clothing and accessories, consumer electronics and home furnishings to take the biggest hit, with 23,500 stores closing by 2026.
Stores bounced back from the early days of the novel coronavirus pandemic when many were shuttered due to lockdowns leading some to proclaim that a retail apocalypse (the death of stores) was coming.
The reality is that stores have become more critical to retail operations. Aggressive operators took advantage of cheap rents brought about by the pandemic to open new locations with a shorter path to profitability.
Retailers have also made stores central to their fulfillment of online orders through pickup and store-to-door delivery operations. Target, in many ways the poster child for the store-centric ops model, fulfills more than 95 percent of its online orders from local stores. UBS expects online sales to grow to 26 percent of total retail sales, up from 20 percent.
Dollar store chains and discounters will continue to add stores as they have for years. Digital natives with brands such as Warby Parker, Vuori and others are also expected to add to their store counts.
Discussion Questions
DISCUSSION QUESTIONS: What role will stores play in retail operations over the next five years? Will large chains displace smaller retailers at the same, faster or slower pace during that period?
Poll
Loading …BrainTrust
Lee Peterson
EVP Thought Leadership, Marketing, WD Partners
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
Stores will always be the heart of retailing. The criticality of the store as the central hub to engage customers and deliver services has never been higher. Larger chains, and especially those like Target who have turned their physical stores into a competitive advantage, will continue to get stronger. That said, there’s always room for innovation and I have no doubt that there will be many new and successful upstarts to challenge the leaders.
Storefronts will continue to dot the retail landscape for many years to come. However they will look and operate differently (or we’ll simply call them “museums”).
Revenue-wise: yes. Experience-wise: no. I really believe that small local shops will have their day soon. When you realize the choices are big box 1 or big box 2, the little vintage store down the street will start to obtain a larger place in your mind. Hang in there local, your day is coming.
Excuse me that is ONE HALF of what they predicted. Not unlike the other doomsday report that came out totally wrong. What value do these predictions have? Asking for a friend.
That’s true. UBS changed its forecast as conditions changed. I’m pulling for them to have to cut their forecast again. I know you are, too.
My concern is the narrative will get picked up again that the sky is falling and everyone will be kicking the retailers once again. I get tired of trying to combat the information that is more based on “what if” rather than facts.
Understood. That’s always been the challenge with forecasts, so updates based on changing market conditions are a must.
UBS’ current forecast puts closures between five and six percent. That’s not sales that disappear but get absorbed elsewhere by other stores and online sales, which may be in the same location as channel designations in the minds of consumers and retailers disappear.
Stores will evolve as omnichannel assets that offer multisensory experiences, immediacy and a human touch. We’ll see more tech in stores, including digital screens and smart carts, as physical and online shopping converge.
Big retailers keep getting bigger by growing their ecosystems and market influence. Bankruptcy poses a growing risk for smaller retailers struggling to stay agile, relevant and solvent.
Stores are not going away. Yes, the big chains will get stronger and discounters will continue to add to their counts, but small, niche operators will shine as well and they will continue to have a strategic and heartfelt place in all of our city/town landscapes.
Physical and digital channels are two sides of the same coin. Retailers are learning how a physical presence plays a big role in boosting both top line earnings and bottom line profits. And the results are well proven through clear data — on average companies see a significant increase in their online sales where physical stores or shop-in-shops are accessible, and a decrease where stores have closed. To think of online and offline as two separate entities is outdated thinking that won’t work going forward.
There’s no doubt that the big chains, operating with the efficiencies that scale gives them, will take additional market share in the coming years. But scale and efficiency don’t translate well into the ability to localize assortments and experiences. By their very nature the big chains will leave voids and opportunities in their offerings. A new breed of retail entrepreneur will want to fill those voids.
I think this is a bit of an apples and oranges issue. Lots of small entrepreneurs open a store and lots of those stores fail, boosting the percentages in favor of chains. But I’d argue two things. First, it depends on the sector. Sure, boutique shops might have some success in the furniture or consumer electronics spaces but, at least in terms of volume and number of stores, those are always going to be dominated by big boxes and online retailing for the foreseeable future. That said, I’d rather own an independent bookstore than a chain store today and independent grocers have chased chains so successfully over the last 40 years or so that many of them have become chains. This isn’t an issue of “big versus small,” it’s a question of “agile and creative” versus “entrenched and stagnant.” And when it comes to stagnant thinking, size really doesn’t matter.
Amen
I am skeptical about these forecasts and think they are exaggerated, not least because as trading conditions have become tougher UBS has revised its estimates of store closures sharply downward. I think they also fail to take into account new store openings which come from the entry of new smaller players into the market. The wider importance of stores to the retail ecosystem — including driving and supporting online sales — also seems to have been ignored.
The big guys will always have an advantage over smaller stores because they have deeper pockets and scores of employees to help run the business. But given the choice between big boxes and chains that all carry the same things, or a quirky, well run independent retailer, I’m going with the indie.
A week ago a RetailWire article posed the question, “Are Retailers Boring the Heck out of Shoppers?” and most of the BrainTrust answered yes. People’s shopping habits are changing — my shopping habits are changing. I shop boxes and chains because it’s convenient, but I shop indie when I want unique.
I agree wholeheartedly with Lee Peterson’s comment: “Hang in there local, your day is coming.”
Also, the bigger the chain, the more likely they’ll be sucked into a private equity trap or squeezed by institutional investors. Even in yesterday’s Walmart discussion, a theme emerges that bigness does not mean infallibility – if anything, there is an upper limit to how much a retailer should grow to avoid overreach, gravitational collapse, being raided, or becoming boring.
Stores will continue be become more local, experience-oriented and multi-purpose to better serve consumers’ needs (and chains’ market share)
Pick a few good large and successful retailers, then let’s call it good, because the rest are average or have lost their way. Yes big retail players have financial muscle and market share. But they also carry debt, they move slowly, hire too many layers of people, and become out of touch with customers.
I’d argue the Indies and smaller regionals are driving category growth, inspiration and creative. The don’t have large resources, but they are agile, close to the customer and must to be creative to grow.
When referring to small-scale retailers, their small size can be due to either a limited selection of products or a narrow geographical reach. Customers often choose to purchase from these retailers because they can find the products they want at lower prices, as well as additional perks that come with shopping at a specific store.
In my opinion, such retailers should consider how effectively they can deliver their products to the customers. Additionally, supply chain efficiency and inventory management must also be considered because the visibility and availability of inventory at any given point hold the utmost importance.
The reason why retail giants like Target & Walmart are successful even today is that they have mastered the concept of supply chain management and worked on how to better their inventory efficiency.