Apocalypse Now or Right-Sizing? Retailing Perseveres Through Mass Closings

Some industry reports indicate more store openings than store closings last year.

Each year retailers routinely prune the store base. A store here, a store there, amid some openings.

But this year the industry has been rocked by an avalanche of store closures impacting operators across the spectrum of prices and product categories and recalling a level of downsizing not seen since the 2008 Great Recession. Optimization and productivity became a mantra for chief executive officers in 2017 as they sought to focus on their best locations. They found support from investors and analysts, who largely applauded the industry’s efforts to become leaner and meaner.

The numbers were big: Macy’s set more than 100 store closings for 2017 and a few years out. Sears and Kmart set 476 through 2017 into January 2018, and J.C. Penney revealed 138 closings.

Payless ShoeSource dropped to roughly 3,500 stores from 4,400 worldwide. Bon-Ton said it would shutter at least 40 units through 2018, and Rue21, Guess, Charming Charlie, BCBG Max Azria Global Holdings and J. Crew each disclosed scores of closings.

Most retailers shuttering stores were part of the lean and mean movement; others were going completely dark. Sears Canada liquidated all of its 82 stores. Bebe Stores Inc. shuttered its 170 doors. American Apparel’s 104 stores were all closed, while The Limited exited its 250 locations and, just last week, boho retailer Calypso revealed plans to liquidate.

Teen retailer American Eagle Outfitters Inc. said in May that it would be more aggressive on store closures, shuttering 25 to 40 doors, though going about it carefully. “We want to do it in a smart way so when we do close a store, we pick up those sales and we pick up those profits,” said Jay Schottenstein, chairman and ceo. “We just don’t want to close stores to close stores. We want to figure out how to optimize and maximize those sales so when we do close, we’re able to keep the majority of [the sales].”

Abercrombie & Fitch Co. in March said it was closing 60 of its U.S. stores “through natural lease expirations” and noted that half of its U.S. leases would expire by the end of fiscal 2018, giving the company plenty of room to operate.

Likewise, Victor Herraro, ceo of Guess Inc., said, “As more than half of our leases will expire, or have kick-out clauses, in the next three years, we have a lot of flexibility to continue with a closure past this year to further improve profitability.”

Guess already shuttered 62 stores over the past two years and laid out plans to close another 60 this year.

When the lease expiration is nowhere in sight, brands bite the bullet. Ralph Lauren Corp. closed its Fifth Avenue Polo store in New York in April as part of its “continued commitment to optimizing its store footprint.” The flagship, which opened in September 2014, is still vacant.

According to the Fung Global Retail & Technology weekly tracker as of Dec. 8, the store closing announcements from major retailers add up to 6,885 units, representing a 224 percent year-over-year decline. Fung’s tracker also calculated 3,433 store openings by major retailers.

“The U.S. retail industry is facing structural headwinds that some observers have referred to as ‘the retail apocalypse,'” Deborah L. Weinswig, managing director of Fung Global Retail & Technology, wrote in a report. “In 2017, many prominent U.S. retailers have struggled to compete with Amazon and e-commerce pure plays. Some companies have filed for bankruptcy and, as of the end of November, U.S. retailers had announced more than 6,400 store closures this year.”

But Weinswig added that “despite the well-publicized struggles in the retail sector in the U.S. and Europe, multiple retailers have held IPOs in 2017, including fashion, furniture and food companies. Their share price performance has been diverse.” Among the IPOs were Canada Goose and J. Jill, and plus-size clothing chain Torrid registered to go public in the near future.

This year’s brick-and-mortar purge is widely regarded as a healthy, albeit painful, cleansing of excess space. The U.S. has 23.5 square feet of retail space per capita, while Canada has just over 16 square feet per person; Japan and France, 1.7 square feet per capita, and the U.K., 1.3 square feet.

Why so many store closings, so suddenly? Simply put, new web sites and the shift to shopping online have siphoned traffic from stores and malls, shareholders have been pressuring retailers for change and greater profits, and retailers are examining the profitability of stores more closely while devoting greater resources to technology, enhancing websites and implementing omnichannel services.

Retailers also realize they must step up merchandise differentiation and personalize the marketing, as America’s middle class shrinks and shopping habits and spending shifts to the home, travel, health and recreational activities and other types of experiences. They must make those stores left more productive by investing in them, rather than building new ones. For decades, retailers grew revenues and profits through aggressive store rollouts