In January, Sears announced that it would close its downtown flagship store in Chicago. Sears has closed over 300 stores in the past four years. J.C. Penney and Macy’s also announced multiple store closings. Target announced it would eliminate close to 500 jobs, including some at its Minnesota headquarters; in addition, Target also announced that it would not fill 700 empty positions. Aeropostale is on track to close 175 stores over the next few years. Walmart also has over 100 stores with declining same-store sales. According to retail experts, these closures and layoffs are only the beginning for the retail industry.
Shoppers will likely begin to see smaller footprints as well, approximately a one-third to one-half decrease in overall square footage. This shrinking retail footprint is due to a shift in e-commerce and retailers’ desires to keep less inventory stocked in stores.
According to the International Council of Shopping Centers, January is a popular month to announce store closings. However, this year’s announcements might be indicative of a more powerful trend. During the holiday season of 2013, online spending increased by 10% on desktop devices, contributing to a nearly 15% decline in foot traffic during the same time frame. During the recession of 2008, shopping center vacancies increased from 5.5% to 11%, and have only recovered 2.1%.
Retail analysts suggest that retailers should concentrate on smaller store networks focusing on customer centricity and e-commerce business. There is often a disconnect between the number of stores that retailers operate versus the number they would choose to operate if they could start over.
Not only are the number of stores declining, but the size of the stores are declining as well. Retailers no longer need to house the same levels of inventory that they used to. Retailers are housing more stock in fulfillment centers in order to reduce commercial real estate expenses.
Retailers are also steering clear of malls and choosing outlet centers, lifestyle malls, or stand-alone locations. The National Retail Federation expects that traditional malls will eventually be extinct. A new indoor mall has not been built since 2006.
1. What retailers are closing stores and/or utilizing a smaller store format?
2. Why are they downsizing?
Source: Krystina Gustafson, www.cnbc.com, January 22, 2014