While we’re only just getting started on 2014, already one of the big retail stories is store closings. While the economy is far from robust, we aren’t in a recession either, and so at first these closings might seem a little surprising. I don’t see it that way, however: The recent spate of planned store closing for 2014 is exactly what we should expect from an industry in transition. It’s not a crisis, so much as it is a realignment. In the absence of any major new economic news, I think we’ll continue to see more announcements throughout the year, and perhaps on into 2015 and beyond.
What has raised some eyebrows is not just that so many closings have already been announced, but that the list of brands shutting down locations includes some of the industry’s most iconic and familiar names: from JC Penney to Target, and from Macy’s to Barnes & Noble. In the case of Barnes & Noble, along with brands like Sears, the closures include some flagship stores both in the U.S. and around the world. It’s true that there are some chains that are expanding (as I mentioned in my last column, store openings are projected to be up 1.2% this year) but, overall, this will be a year of repositioning the retailer’s portfolios.
It’s important to remember, of course, that the vast majority of retailers open and close stores every year in an attempt to replace underperforming locations with new opportunities and maximize the overall quality of its portfolio. Macy’s is a brand that falls into that category, and so the fact that a handful of Macy’s closures have been announced is not particularly surprising — and is certainly nothing to be alarmed about. Most of the announced Macy’s closures are in small markets or in centers that are no longer really viable.
Many of the closings on tap for this year are less about optimization, and more about running out of options, especially in the specialty retail segment. Specialty retail is an area we are going to want to watch carefully in the next year or two, because many of these chains have over-expanded and consequently are saddled with many locations that are significantly underperforming and are not at all profitable. In December, Loehmann’s, a clothing retailer that has been around for more than 90 years, formally declared Chapter 11 Bankruptcy and agreed to a liquidation plan. I’m also hearing rumors of Coldwater Creek closing some stores in the not-too-distant future.
Sears is an interesting and fairly unusual case. While the shuttering of the brand’s Chicago flagship has gotten some media attention, Sears has actually been shedding stores relatively quietly. I’ve talked in the past about how, for Sears’ portfolio, the value is much more in the real estate than in the stores themselves, and the way they have gone about closing stores reflects that. They have closed some locations, but, in others, Sears has leased out a portion of the store to other retailers. In most cases, Sears owns their own locations, so they are able to essentially act as a landlord. While the long-term health of the Sears brand remains very much in doubt, this structure actually puts Sears in a better position financially relative to other struggling brands.
The interesting question (or, at least, a question with an interesting answer) is, why now? You’d think if brick-and-mortar stores made it through the rigors of the last recession, they would be in a better place today? In some cases, I think it’s simply a case of brands that have held on for as long as they can, hoping for a more robust turnaround than the economy has delivered. Essentially, they have run out of time: The modest economic improvement we’ve seen over the last two years or so is just too little too late.
But while a lean economy, over-expansion and, in some areas, an oversaturated retail environment, have taken a toll on some brands, I think there’s more going on here. I see many of the planned closures for 2014 as motivated at least in part by some significant and ongoing evolutionary changes within the industry — most notably the move to smaller stores sizes and the changes brought about by the exploding growth of online and mobile sales. Really, I see three general categories of closure (excluding the “healthy” closures, such as those planned by Gap and Macy’s) that encompass the majority of planned closings: closures related to an oversized store/box, like Best Buy and, to some extent, Sears; closures due to overexpansion, such as Coldwater Creek; and closures driven by the need to adjust as a result of increasing competition from online and mobile, such as Barnes & Noble and, again, Best Buy.
As for 2015? We’ll likely see more of the same, in my opinion. Many of these closures are a reflection of a much longer term restructuring across the retail landscape: a fundamental repositioning. Even if the economy takes off, those structural issues will remain. What do you think? Are any of these store closings impacting you in the markets you work with on a day-to-day basis? Let’s continue the conversation: Leave a comment below or reach out to me at Jeff@JeffGreenPartners.com.
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