The Supply Side: Retail store closures top 11,000 in 2020; 3,368 opened

In a recent report, real estate data tracker CoStar said 40 major retailers declared bankruptcy in 2020, and more than 11,000 store closures were announced. There were 9,300 store closures reported in the same period of 2019.

CoreSight Research also tracks store openings and closures each week, and through Dec. 18, they cite 3,368 store openings, primarily led by the dollar store sector.

The National Retail Federation said 2020 presented enormous challenges for retailers of all sizes, and while the sector is showing resilience among steady consumer spending, there will be more hurdles ahead.

“The pandemic has accelerated what was going to happen in several years in a shorter period of time,” said Mickey Chadha, vice president and retail credit analyst with Moody’s. “The names that have filed for bankruptcy probably were pulled forward.”

In May, Chadha predicted that 2020 would be a rough ride for many retailers with higher default rates amid weaker balance sheets and relentless margin pressures brought on by the COVID-19 pandemic. Four of the six apparel retailers — J.C. Penney Co., Neiman Marcus, J.Crew, and Ascena — mentioned by Chadha as holding looming debt in May ended up in bankruptcy before the summer ended.

Ascena Retail — parent of Ann Taylor, Loft, Catherines, Justice and Lane Bryant — contributed the most significant number of store closures in 2020, at nearly 1,500. By October, Ascena had reached the final phase of its reorganization, making it a much smaller company after selling Catherine’s business and closing all its Justice stores, which left the company with roughly 1,300 stores.

“We believe these actions will enable us to strategically invest in the business and generate sustainable, profitable growth once we emerge from the Chapter 11 process,” CEO Gary Muto said in September.

Analysts have said Ascena, which began as DressBarn and went bankrupt in 2019, made several questionable purchases over the years for brands with little staying power. Most of the brands have been sold or liquidated via bankruptcy over the past two years.

J.C. Penney also went through bankruptcy in 2020 and is emerging as a smaller company. In early December, the company said it planned to close more stores by the spring of 2021 on top of the 150 closures already announced during the bankruptcy proceedings. J.C. Penney emerged from bankruptcy this month after it was acquired by mall owners Simon Property Group and Brookfield Asset Management.

Retail consultant Jan Rogers Kniffen told the Northwest Arkansas Business Journal the number of department and apparel store bankruptcies were not a surprise in 2020. He expects to see the J.C. Penney brand continue to be challenged and at some point eventually go away, following the fate of Sears and Montgomery Ward.

Walter Loeb, a retail analyst and contributor to Forbes, noted in a recent blog that J.C. Penney has the funds to operate, but the world has changed since May with significant drops in in-store traffic and massive growth of online sales. He warns J.C. Penney and others to hasten the shift to online if they want to remain relevant. He said Sephora ditching J.C. Penney and heading to Kohl’s is a slap in the face and the loss of a growing brand. He said the new owner has plenty of work to do.

Analysts tied many store closures in 2020 to excess square footage the U.S. retail sector has over the rest of the world. That suddenly became a massive liability as consumers were stuck in homes ordering more online amid COVID-19. Kniffen said in 2014 that online retail was about 9% of total sales. He previously predicted they would be 50% by 2030. He now thinks it will happen much sooner.

Walmart CEO Doug McMillon has said online retail had leapfrogged ahead three to five years since shelter-in-place guidelines became the norm in the early summer.

While many department stores continue to face challenges, the dollar store sector is expanding with Dollar General, Dollar Tree and Family Dollar growing their footprints during the pandemic. Dollar General opened 1,000 new stores, and Dollar Tree and its Family Dollar chain opened 500 in 2020. Together this dollar store expansion accounts for nearly half of the new store openings in 2020.

Dollar General, which primarily focuses on smaller towns and rural locations, will add another 1,050 locations in 2021. The aggressive growth strategy calls for more than 20 new store openings each week. Jeffery Owen, Dollar General chief financial officer, said the company’s 2021 real estate plans include adding fresh produce to about 600 stores in addition to 1,000 that already have it. Almost half of the new stores and 75% of remodels will consist of 34 cooler doors versus 22, allowing for more fresh and frozen foods to compete with Walmart and local grocery stores.

Analysts seem to agree that Dollar General is proof that brick-and-mortar retail is not soon going away. The chain reported foot traffic was up 21% on Saturdays in November. Recent quarterly earnings revenue was up 17.3%, while net income and operating income were each up 57% from business in its more than 16,700 U.S. stores.

Fiscal 2021 plans also call for 30 new stores that will feature decor and home goods format the company introduced earlier this year in two stores near Nashville, Tenn.

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.