Will store closures worsen in 2020?

Discussion
Photo: RetailWire
Jan 23, 2020
George Anderson

After a record number of retail stores were shuttered in 2019, the question for many entering the new year is whether even more will close this year? 

More than 9,300 stores turned off their lights last year, according to Coresight Research, and three weeks into 2020, chains including Bed Bath & Beyond, Chico’s, GameStop, Gap, J.C. Penney, Lucky’s Market, Macy’s, Papyrus, Pier 1 Imports and others have announced plans to shutter locations. Cushman & Wakefield has estimated that as many as 12,000 stores may close this year.

The expectation that struggling retailers will shutter stores is strong despite denials to the contrary.

Yesterday, Fairway Market issued a statement denying a New York Post report that the 14-store New York-based grocery chain was planning to file for Chapter 7 bankruptcy and close all its locations. The grocer, the Post also reported, is in talks to sell its name and some of its properties to Village Supermarket, a publicly held operator of ShopRite stores. 

Other chains are seen as the retail equivalent of a dead man walking.

Many industry watchers have long seen the demise of Sears and Kmart stores as a question of when and not if. Edward Lampert, the chairman of Transform Holdco, the parent company of the two retail chains, has been much less boisterous in objecting to reports about the coming demise of the companies than he was when he was running Sears Holdings, the previous owner of the two chains. Previously, Mr. Lampert would sporadically issue letters claiming analysts and others were just not being smart enough to see the brilliance of his plan. That, of course, was before Sears closed most of its stores.

Even the independent owners of Sears Hometown stores are questioning the long-term viability of their businesses under Mr. Lampert’s leadership. The company, which was spun off by Sears Holdings in 2012, was reacquired by Mr. Lampert last year. A Wall Street Journal report this week details the problems that Hometown stores have had in getting inventory and complaints from owners’ that their hands are tied when it comes to price matching Sears. Owners claim that, while they are able to match prices on other retailer sites, they are not able to do so when vying for business with their sister retailer. 

DISCUSSION QUESTIONS: What are the most significant factors that led to the large numbers of stores that have been shuttered in recent years? Are there retailers that you think are in particularly perilous positions?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"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."
"We have 6x or more retail square footage per capita in this country than virtually the entire civilized world. Maybe there’s some validity in tightening that up some?"
"The fact is that a lot of retailers have been coasting for a long time when it comes to their store experiences and are now paying the price for various bad decisions..."

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32 Comments on "Will store closures worsen in 2020?"


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Neil Saunders
BrainTrust

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.

Georganne Bender
BrainTrust

I absolutely agree, Neil. Some locations need to close for the good of the company. We need to work to change the perception the media puts on retail store closures. They report it as MORE RETAIL STORES CLOSING! when in reality the chain is healthier when it shutters non-producing locations. The “sky is falling” headlines don’t help.

Carol Spieckerman
BrainTrust

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.

Richard Hernandez
BrainTrust

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.

Art Suriano
Guest
I think the reasons for the extreme amount of store closures are apparent: 1.) there are too many stores, 2.) the percentage of shoppers shopping online continues to increase and 3.) too many retailers have not kept up with the times and their stores have become tired and dull. That said, what is happening is that retail, mainly brick-and-mortar, is going through a significant transition. Back in the 1940s one could never imagine radio coming to an end. But when television came along, many felt radio was doomed. It took several years for the radio industry to invent itself, first with music and later in the 1980s talk radio and news. Amazingly, today more people listen to the radio than any other medium. Retail is going through the early stages of change. Many of the players we have known for years like Sears will most likely not be in the next generation of retail. Instead we will see many new names, smaller stores designed for browsing and not taking the item home, and technology that… Read more »
Ben Ball
BrainTrust

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.

Ananda Chakravarty
BrainTrust

Good thoughts – but still not clear on the over-stored market. How can you have a demand problem when there is still market growth to the tune of $150 billion in physical retail? Even in the U.S., floor space is highly selective — I’m sure a lease rate in Cheyenne will be less than one in New York.

Kathleen Fischer
BrainTrust

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.

Jeff Sward
BrainTrust

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.

Scott Norris
Guest

In my industry: making product vendors give ever-deeper discounts and ever-longer payment terms instead and pocketing the margin rather than investing it in getting new feet in the stores. It’s a great way to show us vendors the merchant isn’t a partner and encourage us to sell direct-to-consumer!

Ricardo Belmar
BrainTrust

Jeff, you have nailed it! Many factors at play creating a “perfect storm” for store closures. No one of these — and no, not Amazon’s success — is fully to blame. It’s the combination of these things over a period of years in each of these failing retailers’ pasts. Now those past ill-conceived decisions are catching up the executive suite and they are simply failing to act and enact the changes needed, quickly enough, to survive. In some cases, survival is just impossible — looking at you Sears. That’s the real story.

George Anderson
Staff

The Wall Street Journal, citing research from Fitch Ratings, reports today that 45 percent of retailers that have filed for Chapter 11 bankruptcy protection over the last 15 years wound up closing all their locations. It gives you a completely different view of companies entering Chapter 11 and pledging to reemerge stronger than ever, doesn’t it?

Ken Lonyai
BrainTrust

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.

Gene Detroyer
BrainTrust

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.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
7 months 28 days ago

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.
  5. 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.

Bob Phibbs
BrainTrust

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.

Dick Seesel
BrainTrust

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.

Shep Hyken
BrainTrust

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.

Stephen Rector
BrainTrust

There will be more store closures in 2020 and that’s not a bad thing. Legacy retailers that are not evolving to meet customer needs will be forced to close. While store closures get a lot of headlines, what also is happening are new stores opening from DTC brands (Casper, Warby Parker etc.) and the off price chains that are offering what their customer wants.

Paula Rosenblum
BrainTrust

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.

Cathy Hotka
BrainTrust

True. There’s some truly amazing retail that’s opening up to take the place of stores that can’t figure out how to retail in 2020. Malls? You have to think that some of them will be repurposed to residential.

James Tenser
BrainTrust

I believe we’ve seen recent data indicating that about half as many new U.S. retail stores have opened in the past year as have closed — so 4,000+.

But store counts present an imperfect picture. What about the data on square-footage added or lost? Statista said we had 23.5 square feet of retail space per person in the U.S. in 2018. Canada was the next closest, at 16.8, and the U.K. came in fourth, at 4.6.

We have 6x or more retail square footage per capita in this country than virtually the entire civilized world. Maybe there’s some validity in tightening that up some?

Ralph Jacobson
BrainTrust

“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.

Ananda Chakravarty
BrainTrust

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.)

Tony Orlando
BrainTrust
There will be more store closings for sure, and this will continue at steady pace for a few more years. The obvious reasons have been addressed already, and the underbelly of what is going on is how I look at it. The Mega Retailer has imposed its will on many communities, and for rural smaller towns, this hits even harder as small business is in peril of more closures than any time in my many years of business. Here are my reasons why this is going to continue for some time: e-commerce is outpacing all previous predictions for growth, and it will continue to grab more market share unabated for many years. Cost of goods for the independent retailers on key staples is heavily skewed in the favor of the Mega stores, who demand huge discounts on these SKUs, and we subsidize the CPG companies with much higher going in costs to make up for the losses they incur from the larger chains. This applies to many categories, like shoes, lumber, hardware, and especially food… Read more »
Ricardo Belmar
BrainTrust
There are many factors at play, some financial, some in-store experience drive, and some just plain mismanagement of the retail brand that have led to all of these closures. No, it’s not just because Amazon has disrupted their unique category despite the claims made by some retail execs on their way out. Is the U.S. over-stored? Well, yes and no, in my opinion. Yes, in some cases, such as how I can reach at least 5 or 6 Macy’s, J.C. Penney’s, and once upon a time Sears stores in an hour’s drive from my home. Did I ever need to have access to more than 5 or 6 of each of those retail brands? No, certainly not. But at the same time, there are many retail brands I either do not have anywhere near me within 1 or 2 hours drive and some where I may have access to 2 but would love to have another option when their inventory is off. So the answer there is that for many brands, increasing store counts was… Read more »
Craig Sundstrom
Guest

12,000 > 9,300, so the answer to the question posed by the post’s title is “yes.” The more interesting question, then, I guess, is “what will be the makeup of those closures?” Will it continue to be pruning of “underproducing” stores, or will whole chains go under … and if so which ones? Sears and JCP are the obvious choices, of course — though there’s a debate as to whether the former is really a major retailer any more. I don’t think the latter will close (this year anyway) but it’s becoming ever harder to see a future for it. And, as always the big wild card is the economy. Will the manufacturing recession spread into services? Will we “win” our way into a trade abyss? Will some bubble (housing, Tesla stock … take your pick) burst? Tune in next week, and until then: Hi Ho Silver … away!

gordon arnold
Guest

Location and reliable demographic information decisions are often using using testing methods that were created in the middle of the 20th century. Test samples for market conditions are lower than ever. These two issues alone are causing more and more failures as we move forward into the 21st century. This is easily seen as we view large corporate retailers struggling with same store sales results. Relying on outside vendors that use their own data sources may need to be validated at regular intervals. Using antiquated marketing test methods will likely provide insufficiently validated and/or unrelated data needed to make critical decisions. There are means to ensure the information is useful and it is paramount that they be discovered and utilized to minimize risk.

Cate Trotter
BrainTrust

There will undoubtedly be more store closures to come, but this isn’t a death knell for physical retail as a whole. The fact is that a lot of retailers have been coasting for a long time when it comes to their store experiences and are now paying the price for various bad decisions and — often — not actually recognising what their value proposition is in the market. Why should customers choose them? What are their brand strengths? What do they offer that enhances the customer’s lifestyle?

For some retailers it is too late to make effective changes and so stores will have to close. Other retailers are reassessing their portfolio which may mean closing some spaces, but opening other formats that better serve customer needs. Hopefully we will end up with a more robust physical store offering as a result.

Brian Cluster
BrainTrust

As many of you heard at NRF, there is a growing gap between great and the rest of retail. If we are really honest with ourselves, many consumers had the feeling that they “had” to go to the grocery store, the drug store or the department store. Retailers have to make the consumers feel like they “get” to go to a great experience of shopping that is relevant to my life. As many said before, assortment, price and merchandising is not the answer.

Drivers of the closures were bad experiences, “had to go” stores, overstored locations and growth of pure-play retail.

Jeffrey McNulty
Guest

This retail “recorrection” is still in play in 2020. We are over-retailed and the retail sector must slim down to recalibrate for the e-commerce boom. This tumultuous environment is creating an atmosphere for retailers to pivot and adjust to the New Retail Ethos.

Kai Clarke
BrainTrust

More stores will close their doors in 2020. Physical store locations are a dying model (unless they back up a robust online presence) and the majority of brick and mortar stores are doomed to close. The online model is faster, more efficient, lower cost (offers more profits), and more competitive. All of this points to an adapt or perish position for brick and mortar stores.

wpDiscuz
Braintrust
"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."
"We have 6x or more retail square footage per capita in this country than virtually the entire civilized world. Maybe there’s some validity in tightening that up some?"
"The fact is that a lot of retailers have been coasting for a long time when it comes to their store experiences and are now paying the price for various bad decisions..."

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