Store Closings Galore
By George Anderson
As a CNNMoney.com report points out, we’re only a few weeks into the new year and already a spate of store closings have been announced.
OfficeMax said it would close 110 locations. Toys R Us plans to shutter 75 locations. The announced sale of Albertsons will certainly lead to some stores being closed or, at the very least, being occupied by others.
Even those opening new stores, such as Home Depot, plan on putting fewer “Grand Opening” signs out in 2006.
Geoff Wissman, vice president of retail with Retail Forward, said it comes down to commercial Darwinism.
“We’re increasingly seeing the strong getting stronger and the weaker players getting left behind,” he said.
Another reason for the number of stores closing, according to Howard Davidowitz, is that there are simply too many of them.
The chairman of the consulting firm Davidowitz & Associates said, “There’s nineteen-and-a-half square foot of retail space for every shopper in this country. That’s a lot. Is it natural for companies to keep expanding when the market is already overcrowded with stores, especially when there are numerous projections calling for a slowdown in consumer spending?”
Another reason behind the need for fewer stores, said Mr. Davidowitz, is the internet. With double digit year-over-year increases (25 percent this past holiday), stores are able to achieve sales increases without opening new stores.
Jay McIntosh, director of retail and consumer products with Ernst & Young, also thinks online sales are having an impact.
“Is online retailing stealing market share away from brick-and-mortar stores? Absolutely,” he said. “Online retailing as a group is the second largest retailer after Wal-Mart in terms of annual sales.”
Another factor in store closings, or at least in depressing the number of new ones being opened, is the high cost of energy.
According to Mr. McIntosh, “With energy costs escalating, it costs a lot more to run your business, especially if you operate a large fleet of stores.”
Retail Forward’s Wissman said other factors in store closings are the number of private equity firms buying businesses and activist shareholders forcing companies to look at the return they are getting from real estate holdings.
“These new institutional owners are looking more closely at the company’s balance sheet because they want to make their investments profitable,” he said. “So that’s one driver for shedding a company’s dead weight.”
Moderator’s Comment: What is your take on the state of retailing from a store opening/closing standpoint? –
George Anderson – Moderator