The Supply Side: More retail stores close as 2019 winds down

Through the first 49 weeks of the year, U.S. retailers have announced more than 9,271 store closures, nearly double the amount recorded in 2018. There is no sign when the retail casualties will cease, according to Coresight Research.

Payless ShoeSource led the closures in 2019 with plans to shutter all of its 2,500 North American stores. The retailer filed bankruptcy in February for the second time. Payless said it would close all stores and wind down its e-commerce business this year. Stephen Marotta, the chief restructuring officer at Payless, said in February the company emerged from its prior bankruptcy reorganization ill-equipped to survive in today’s retail environment. He said the company was struggling with too much debt and a footprint too large to create a sustainable business.

Children’s apparel retailer Gymboree also filed Chapter 11 bankruptcy in January, announcing plans to close 805 stores this year. It’s also the second bankruptcy for Gymboree after years of declining sales. Women’s apparel retailers DressBarn, owned by Ascena Retail Group, announced in May it was shuttering all of its 650 U.S. stores.

“For more than 50 years, DressBarn has served women’s fashion needs … This decision was difficult, but necessary, as the DressBarn chain has not been operating at an acceptable level of profitability in today’s retail environment,” DressBarn CFO Steven Taylor said in a May news release.

Charlotte Russe also said it would close all 520 stores this year after filing bankruptcy in February. The mall-based retailer geared toward young women sought out a buyer but ended up liquidating.

There was trouble across the full retail spectrum and not just in the apparel business. Specialty retailers from Destination Maternity and its 258 store closures, GameStop’s 200 store closures, Kitchen Collection’s 160 closures and the 102 Performance Bicycle store closures were an indication of widespread woes.

In the dollar store segment, Fred’s Inc. filed bankruptcy in September and announced all of its 520 stores would close this year. Family Dollar, owned by Dollar Tree, also announced 390 store closures in 2019. The retailer said it would convert another 200 Family Dollar stores into Dollar Tree stores.

However, Dollar General has announced it will add another 1,000 stores in 2020. That’s in addition to the more than 16,000 locations it already has — more than McDonald’s in the U.S. and more than Walmart globally.

“We have a great group of individuals that work for this company that work hard every day to make sure we execute at a very, very high level. And that’s what really gave us the notion to move a little faster here,” Dollar General CEO Todd Vasos told investors Dec. 5, noting sales rose 8.9% to nearly $7 billion over the past three months, compared with the same time last year.

Retailers announced the addition of 4,376 store openings in 2019 despite the excess retail space already in existence.

A report from ICSC and CoStar indicates the U.S. has more than 115,000 shopping centers totaling over 7.5 billion of retail square footage. PwC (PricewaterhouseCoopers) estimates it is 24 square feet of retail space per person in the U.S., 50% more than in Canada, which ranks second to the U.S. in retail square footage. The U.S. has twice that of Australia and almost six times the retail space as the United Kingdom.

PwC forecasts U.S retail space will need to shrink toward that of Australia to rebalance — a contraction of more than 50%. This indicates more retail closures. Credit Suisse expects one in four malls in the U.S. will close by 2022. That report found in 2019, mall closures are averaging 75 per year.

They expect the most store casualties to occur in California, Florida, Texas, Pennsylvania, New York, Ohio, Georgia, Illinois, Virginia and Maryland and Tennessee.

UBS recently reported an estimated 75,000 stores that sell clothing, electronics and furniture are likely to close in the coming years as more sales shift online. UBS said as online shopping is expected to comprise 25% of retail sales in the next five years, store closures will escalate.

Apparel retailers will see the largest impact with an estimated 21,000 store closures, while consumer electronics stores and home furnishing shops are expected to see 10,000 and 8,000 closures, respectively. John Morris, a senior apparel analyst at D.A. Davidson, recently noted the cleansing taking place in retail is healthy and necessary.

“We’re in the middle of a multiyear retail purge. Companies are finding that when it comes to stores, less is more,” Morris said.

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.