The Supply Side: Retail store closures, openings expected to escalate this year

The retail sector was stable in 2022 after 9,300 retail store closures in 2019 before the pandemic and another 1,800 closures reported through mid-2021. But UBS analysts predict store closures will escalate in 2023, led by trouble in the department store segment.

UBS notes that retailers with mounting debt will have a more challenging time in a rising interest rate climate which could increase the number of bankruptcies. UBS analyst Jay Sole said months of inflation and a looming recession also will eat into sales at mid-tier retailers like Kohl’s and Macy’s.

“These trends are likely not good for department stores as both luxury companies as well as off-price retailers compete directly with department stores. We expect department stores to close locations as challenges persist,” Sole noted.

In 2020, Macy’s outlined a plan to close 125 stores in lower-tier malls by 2023. And this past June, Morningstar analysts identified 10 Kohl’s property leases set to expire before fiscal year 2023. At the end of 2022, Kohl’s had 1,157 stores, down from 1,165 in 2021. Under new management, Kohl’s has plans to open 100 smaller format stores in new markets over the next four years. The company is also on track to have 850 Sephora’s at Kohl’s shops by 2023.

According to Coresight Research, Kohl’s has 25 new store openings for 2023. Nordstrom plans to open at least six discounted Rack locations this year.

Since sales stalled toward late 2022, UBS said department store closures have been flat since early 2021. If a recession occurs, UBS expects more department stores will shutter locations, particularly those based in traditional malls. The U.S. Department of Commerce reported department store sales were down nearly 3% in November at the start of the holiday season. UBS analysts predict department store sales will “remain under pressure” in the first half of 2023.

Retail analysts with Forrester said mid-tier retailers have the most to lose as consumers reduce spending. The consensus sentiment is that off-price and value-focused retailers such as TJ Maxx, Costco or Dollar stores tend to perform better during a slowing economy and looming recession.

While the department store sector remains under pressure, the retail industry is predicted to fare well in 2023. Coresight Research still needs to release a complete list of department store closures for this year. Still, on Dec. 22, the marketing and analytics firm reported that U.S. retailers plan 522 store closures and nearly 1,900 new store openings in 2023. It would mark the third year retailers have opened more stores than they closed.

Dollar General, Five Below and Family Dollar are among the top five retailers with the most store openings slated for 2023, according to Coresight. Tennessee-based Dollar General leads the way with new store opening announcements for 2023, with more than 1,050 locations set to open this year. The company also plans to complete 2,000 store remodels and 120 store relocations. Family Dollar and Dollar Tree have also announced plans to open around 800 Dollar Tree Plus stores this year and 500 combo stores that combine the Family Dollar and Dollar Tree merchandise under one roof.

Coresight also reports that off-price retailers like Burlington Stores and Five Below have announced aggressive new store strategies over the next few years. In November, Burlington announced plans to open between 500 and 600 stores to reach 2,000 locations. At the end of 2022, Burlington had 893 stores with plans to continue downsizing the larger stores in its fleet to its new 25,000-square-foot prototype.

Discounter Five Below, run by former Walmart executive Joel Anderson, announced plans to open 1,000 stores by 2025. Analysts with Placer.ai said the go-to discounter for tweens and teens is a stalwart in the booming dollar and extreme discount store segment. The chain reported double-digit traffic growth in the third quarter and will triple its footprint by 2030. Analytics firm Placer.ai pegged Five Below as one of the top retailers to watch in 2023.

Academy Sports + Outdoors plans to open between 80 and 100 new stores by 2025. To achieve this expansion, the retailer said it is prioritizing “localized assortments” of products designed for consumers in a specific region or market.

California-based Boot Barn plans to build 40 new stores this year and expand into New York, Connecticut and Maryland. Analysts said the Western wear retailer succeeded by tapping into underserved markets and targeting shoppers in the farming, fishing and forestry industries. Placer.ai also pegged Boot Barn as one of its 10 retailers to watch in 2023.

VF Corp., the maker of brands like North Face and Vans, said in October that it planned to open 300 North Face retail and partner store locations across the globe over the next five years. The brand plans to revamp existing stores to create a more cohesive experience across all locations.

Designer retailer Ralph Lauren also recently outlined a plan to open more than 250 stores over the next several years, focusing on the 30 top cities around the globe. President and CEO Patrice Louvet said in September that Ralph Lauren is reestablishing its standing as a strong luxury fashion player.

The designer retailers and brands have seen sales slow in recent months, and analysts warn they, too, could suffer under an economic downturn. Mastercard reported in October that spending cuts on luxury goods were the sharpest among middle-income Americans earning between $50,000 and $125,000 annually. The credit card company found that this buying demographic made up 39% of luxury goods sales in 2021, falling to 34% last year.

Another report by Citi found that the number of Americans buying luxury goods fell in the last quarter of the year while spending on restaurants and travel continued to rise.

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.