There will be more store closures, for sure. Some of this is about correcting the glut of supply. However, a lot of it is about poor stores that no longer deliver the right experience closing because they are no longer relevant. Although closures can be painful – especially for those whose jobs are affected – some churn is a healthy thing. Without it, there would be stagnation.

The significant factors leading to store closures are 1.) Amazon’s digital dominance 2.) Lack of bricks and clicks integration (Walmart isn’t closing massive number of stores because they’ve nailed this) and 3.) The fall of the mall.

J.C. Penney and Sears are in peril as are any number of category killers that are still in business. It used to be that retailers feared Walmart entering a category (and to some degree that’s still true). Now Amazon’s profit-be-damned attacks are rendering category killing a daring business model. Store closures aren’t necessarily a death knell. Some retailers can address various markets digitally without saturating them with stores. Either way, the store closure action isn’t over.

It is early is 2020 and closures are starting at an uptick. I believe this is a reality check on chains that had middling stores (OK to bad locations that did OK to soft sales) that stayed open for one reason or another. Chains should look at the store experience they are giving the customers in granular detail – this will be a major factor moving forward with over-stored soft sale retailers.

The two fundamental causes of store closures over the past decade have been:
1.) a fundamental shift to online shopping, and 2.) the U.S. was simply “over-stored.”

Both trends are maturing in terms of their impact on total store count and have peaked. 2020 will certainly see more cleanup as weak concepts close their remaining stores and stronger concepts conclude their house cleaning. Walgreens recently proclaimed their slimmer 9,000 store footprint “about right” and the Rite Aid cleanup is also pretty much done. Mall spaces have attracted the most attention in store closings and rightly so. But stronger mall operators are either revamping their formats to entertainment malls or repurposing their properties to residential commercial combinations. Are store closings done? Hardly, but I think we will see a return to the normal churn of concepts launching and failing in the next three to five years.

Unfortunately the market is “over-stored.” The U.S. still has the highest square footage of retail space per capita worldwide with 23.5 square feet per person and with the ability of consumers to easily shop online and ship from wherever, physical store locations have to be smarter and more efficient to survive.

Let me count the ways. Choosing to compete on price rather than on value. Choosing to compete on percentage of savings rather than story telling. Choosing to compete with a fuzzy brand promise rather than figuring out how to differentiate and tell some kind of unique story. Choosing to believe that “more” was the answer rather than “focused.” Choosing “safe” rather than managed risk. Choosing “safe” rather than “treasure hunt” and “surprise and delight.” Choosing stock buybacks rather than investing in the future of the business. Or simply — bad choices.

Without reviewing every weak chain’s financials, cash on hand, marketing strategy, and merchandising plan, no one can accurately predict store closings. That said, my guess is that 2020 will be similar to 2019.

The factors for closings have been the same for at least the last decade, chiefly a Luddite industry mentality and sometimes arrogance that has allowed newcomers with better strategies incorporating m/e-commerce without the burden of too much legacy real estate and/or no real estate to change the rules and upend what retail was.

The fairly common answer and absolutely correct answer to start with is that the U.S. is over-stored by a factor of two times or more.

But the online issue hits directly at the economics of brick-and-mortar stores. Consider the retailers with the very best net profit margins, say 5 percent, 6 percent, rarely much more. Now take the share of total retail sales that online represents (depending on the stats, anywhere from 14 percent to 20 percent). Take that percentage off the top of the P&L. On a national level it puts national brick-and-mortar into a loss. The only way to stem this is to cut overhead…that is, close stores.

Retail shopping is still more than 85 percent of all commerce. I view this as category specific. certain categories have gone full online, and more will follow.

Retailers that are able to pivot and invest are focused on four elements:

1. Capabilities (BOPIS, omnichannel, customer service);
2. Brand positioning;
3. in-store experiences, and;
4. product assortment.

Such retailers also will look to get more $ out of their space. Pop-up stores will be more commonplace.

Retailers that are stuck with doing none of the above will close down.

Fix the customer experience and you have a chance. Think your merch will save you, prepare to close stores. Keep discounting and you’re just a going out of business sale on layaway.

The sheer number of Payless stores that closed may have been the peak, but there isn’t any doubt that plenty of chains — even healthy ones — continue to close doors at a faster pace. There is a “town center” nearby that is undergoing redevelopment and a reduction in total square footage, but many national retailers aren’t waiting for that to happen — the latest being Chico’s and White House Black Market. The biggest shoe to drop will be Sears, when that day inevitably comes. Meanwhile, very few retailers seem to be able to leverage a large store count to drive their omnichannel business, too — Walmart and Target top the list.

While relevance (of merchandise/product) has always been a reason for a retailer to fail – along with typical economic issues – stores will lose out by failing to meet the consumer’s expectations of customer experience. Consumers are trained by the CX rockstars and expect to get similar experiences in most of the places they do business. How does one retailer who sells the same items as another win? It’s through meeting consumers’ expectations of convenience, service availability, and more. Retailers in a particularly perilous position? Anyone that thinks the only thing that matters is price and selection. If you don’t deliver on the CX expectation, a competitor surely will.

This is crazy making. How many stores opened in 2019? Do we know?

For example: a really bad Kmart closed last year near my house, it is being replaced by a Ross, Michaels and a Burlington Coat. Apart from the fact that it’s a Seritage project (which infuriates me a bit), that feels like a net gain. Same with the old Sears store in Aventura.

Certainly the U.S. is over-stored, but this “closure number” is really nonsense.

“Adapt or die” is the rule of any business. It’s not like there aren’t customers for these retailers’ product categories. It’s a matter of shoppers not being attracted to those stores for whatever reasons (e.g., brand image, customer service, product selection, etc.) and/or poor strategic management by the leadership of those companies. That includes preparing for new competitors, etc.

Top factors for large numbers of store closings:

• Unmanaged Debt – example: Sears;
• External control (sometimes private equity) example: Toys “R” Us;
• Lack of innovation – example: Blockbuster or Borders.

There are others, but these are the main culprits. It’s not tech and it’s not “Amazon ate my lunch.”

At this point, I expect less impact from online or other tech factors. We’ve gone through enough cycles that businesses heavily impacted by e-commerce competition have weathered the storm or left the market. Many pure-plays are looking to get into brick-and-mortar and become omnichannel players- it’s the most economical. We’ll see a few more go under- but these are long-term strategies that were sacrificed for short-term gains (infusion of capital, shareholder value, etc.)