The Supply Side: Retail giants closing stores at unprecedented rate

Retailers are on pace to shutter more than 3,448 U.S. stores this calendar year, according to Coresight Research. That compares to 3,807 store closures in 2022. The closures include 896 from bankrupt Bed Bath & Beyond.

While closures approach 3,500 locations this calendar year, retailers have also opened 78 million square feet of new retail space with roughly 4,500 new store locations, according to Coresight data.

Analysts at McKinsey said retailers have to evaluate their footprints as they work toward omnichannel business models. Consumers shopping behaviors now include more online shopping and seeking out stores that can offer exceptional experiences.

According to UBS equity analyst Michael Lasser, the U.S. remains over-retailed. Lasser estimated that the U.S. will shed almost 50,000 retail stores by 2028. He cites rising operating costs and a higher proportion of e-commerce sales, causing retailers to look closely at store locations and performance.

UBS estimates there are 940,000 U.S. stores, and a 5% reduction would free up about $285 billion of consumer spending for the surviving stores to compete. UBS estimates e-commerce sales will rise to 26% of total sales by 2028, with one in four digital transactions being fulfilled from stores. E-commerce accounted for roughly 16% of all U.S. sales in the third quarter.

FOOTPRINT EVALUATIONS
Specialty retailer Foot Locker announced plans to close 545 stores by 2026 as it shifts away from shopping malls. Foot Locker also said it will open more than 300 new concept stores in the same period, including locations outside malls.

One of the more successful specialty stores, Bath & Body Works, also closed 50 stores in underperforming malls this year but at the same time added 90 new stand-alone locations. The retailer cited high rents and low traffic for the closures.

Walmart has roughly 4,700 U.S. stores and has not opened any new stores in recent years, choosing to remodel them to improve shopping experiences, make them more efficient for online order pickups, and connect the online and in-store experiences through its mobile app.

Walmart has closed 22 stores this year citing poor performance. Target continues to add stores to its footprint with 20 new locations coming this year. The Minneapolis-based big box retailer said last month that it planned to close nine stores in New York, Portland, San Francisco and Seattle because of theft and organized retail crime. Target closed four other stores in three metro areas earlier this year because of declining foot traffic. The company expects to have just under 2,000 U.S. stores by year-end.

Best Buy is experimenting with smaller formats opening eight locations and 10 outlet stores this year. The electronics retail giant closed 20 of its largest format stores in 2023. The retailer typically closes 15 to 20 locations annually as leases are reviewed.

Dollar General contributed an estimated 10.8 million square feet of new retail space this year. The discount retailer had planned to open 1,050 new stores in 2023 but pared back to 990 stores with its “Popshelf” format, getting 90 new locations instead of 150. The retailer said the decision to pull back on new stores was based on slowing consumer demand.

The pharmacy segment has had its share of closures this year with Rite Aid shuttering 154 stores amid its ongoing bankruptcy. With roughly 2,100 stores, analysts expect the number of closures could reach 500 for the chain.

CVS is in the second year of a three-year plan to close 900 stores by the end of 2024 citing changing populations and buying patterns in certain areas. Walgreens also is set to close 150 U.S. stores this year due to underperformance.

SPECIALTY RETAILERS
Lasser said he expects most of the closures from specialty retailers squeezed out of business by larger omnichannel competitors. He said some will go out of business permanently, like Tuesday Morning. Others will re-emerge as online businesses like Bed Bath & Beyond, which was acquired by Overstock.com and now operates as BedBath&Beyond.com.

Apparel retailer Gap closed about 350 locations this year, and its subsidiary Banana Republic closed two stores. The retailer said it would end the year with 866 stores, a smaller footprint than in 2022. Coresight Research analyst Deborah Weinswig said Gap has failed to keep up with competitors’ innovation, and the retailer is also primarily located in shopping malls where fewer shoppers are going.

Dick’s Sporting Goods acquired Moosejaw from Walmart this year and said it would close 11 locations in September. It integrated the remaining three stores with its outdoor-focused brand, Public Lands.

Discount grocery retailer Lidl closed 11 underperforming stores in Maryland, New Jersey, North Carolina, South Carolina, Pennsylvania and Virginia. The retailer needs to catch up to the 600 stores it pledged to open in 2017, with roughly 170 stores to date. Lidl also opened three new stores in September. The grocer also laid off 200 U.S. corporate employees earlier this year. Retail analyst Sebastian Rennack said Lidl has struggled to gain brand recognition in the U.S., and the locations could be better chosen for American customers.

In July, specialty retailer The Children’s Place laid off 17% of its corporate workforce and ended the lease for its corporate headquarters in Secaucus, N.J., amid the company’s shift toward becoming more digital. The retailer — whose brand portfolio also includes Gymboree, Sugar & Jade and PJ Place — has been working to transition from a traditional store concept into a digital-first business, spending $50 million to upgrade omnichannel capabilities over the past decade. The retailer has closed 600 stores and is slated to shutter between 80 and 100 more this year. By 2024, the company expects to have about 500 stores.

Warby Parker is an exception to the closure trend. Starting as an online eye-glass retailer in 2010, the company will have 230 brick-and-mortar stores nationwide by the end of 2023. It marks the 10th year Warby Parker has added brick-and-mortar stores to meet consumer demand. The business began by sending five pairs of glasses through the mail to online customers who could buy one or all or return as many as they wanted for no charge. Company executives said the retail stores provide a touchpoint where customers can come in and try as many styles as they want and see the entire assortment.

Analysts at Telsey Advisory Group said brick-and-mortar stores will always make sense when they provide consumers with personalized experiences when they want to see and touch the products they buy.

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 Firebend.