Study Predicts Store Closings

Discussion
Aug 27, 2009
George Anderson

By George Anderson

It’s common to hear complaints about retailers operating in over-stored environments.
Conversely, there exists a parallel but seemingly opposite universe where alarms
are raised when retail sites are abandoned or otherwise left unoccupied.

A new report from Grant Thornton predicts that the number of store closings
this year will nearly double from 2008 reaching up to 10,000 nationwide. According
to the report, closings last year were centered in consumer electronics, home
furnishings and clothing stores. This year, those same outlets are being joined
by large number of department stores and food/beverage locations. Book stores
are also expected to see a much higher rate on a percentage basis if not in
actual store counts.

Sandra Reese, a principal at Grant Thornton, told the Chicago Sun-Times, “It’s
been amazing to me how, in conversations, everyone from the low-end to the
high-end shopper is cutting back on spending and not spending on lavish purchases.”

Scott Davis, principal at Grant Thornton’s Corporate Advisory and Restructuring
Services, said in a press release, “Although there’s high risk in the retail
industry, now is the time for companies to fine-tune their business and take
advantage of new opportunities.The winners will be the disciplined companies
investing the time, effort and resources to reexamine their strategies and
position themselves for growth.”

Discussion Questions: Are there too many retail store locations? Should there
be real concern in the industry about the high number of vacancy rates? Does
this market provide unique opportunities for retailers to grow their businesses
through strategic real estate acquisitions?

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25 Comments on "Study Predicts Store Closings"


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Ralph Jacobson
Guest
11 years 8 months ago

Are there too many store locations? For the current economy? Yes. However, that’s fairly short-sighted. Has the US overbuilt retail? In some regions, yes. But there are still growing communities that need a variety of retail segments, and the current economic outlook hasn’t sparked that growth, yet.

There is another issue, though, and that’s the fact that there isn’t enough compelling retail space in the market. Innovation is only exhibited in a small percentage of stores. Most stores have the same format of those that existed decades ago.

Max Goldberg
Guest
11 years 8 months ago

The current recession offers minefields and opportunity. Many mom and pop stores and small chains may go out of business. Retailers with money will be able to take advantage of the situation through smart retail transactions.

Consumers will tell us if there are too many retail locations. If they continue to decrease spending or if spending remains at 2009 levels, there will not be the need for more stores and we will probably face a landscape of fewer stores. It’s hard to say if this is good or bad; it’s just reality and the marketplace will adjust to it.

David Livingston
Guest
11 years 8 months ago

Do the math; if there are stores closing, it means there are too many stores. It also means there are some very weak retailers that don’t deserve to be in business.

This is a time of opportunity. Retailers can negotiate lower rents that will put them in a good position for the future. As weaker retailers fall to the wayside, the stronger, more competitive retailers will gain market share. Even weak retailers like Winn-Dixie are benefiting as even weaker retailers like Albertsons continue to shutter stores.

I would expect to see a lot of turnover in the next couple of years. As people get laid off and can’t find jobs, many of them will cash in their 401ks and purchase of franchise of some sorts from ads in back of those business magazines. They will set up shop in poor locations and combined with their lack of business experience, soon fail. We are going to see a lot of this.

Phil Rubin
Guest
11 years 8 months ago

If there were not too many stores, there would not be so many vacancies. Basic economics dictates the equilibrium between supply and demand. The US has been over-stored for some time though it does vary chain by chain. Starbucks was and is a prime example but so are many others. It’s still happening with drug and c-stores.

At the same time, the smart retailers are those taking advantage of the multitude of opportunities. These range from real estate to marketing–there are lots of both of these up for grabs!

Steve Montgomery
Guest
11 years 8 months ago

Too many stores or too few buyers, ah that is the question. When times were great, many chains operated with a “built it they will come” mentality and got away with it. As the economic climate changed they discovered that many of these locations simply did not have the traffic to support them.

Now their networks are being “rationalized.” One of the outcomes of this is the appearance of more empty store fronts which reinforces the negative perception of the economy and retail in general.

This makes it even harder for retailers to secure the funding to open what might be great locations. Those that have solid funding will be able to secure additional locations and/or buy out competitors and emerge even stronger.

Gene Hoffman
Guest
Gene Hoffman
11 years 8 months ago

Too many retail locations–and now more vacant locations–are the result of too much enthusiasm by ever-hopeful static retailers and aggressive real estate developers.

High vacancies rates are opportunities for prudent retail planners who can now strike better leases and secure some good locations to work their well-organized business plan.

Retailing is an ever-evolving paradigm with astute players taking over where non-persistent players should never have gone.

Bill Robinson
Guest
Bill Robinson
11 years 8 months ago
The number of stores has exploded since the invention of the mall and its sprawl partner in crime–the Interstate Highway System. Yet store productivity expressed in sales per square feet has dropped dramatically. The tools are available for the entire industry to become significantly more productive. Use m-commerce or email to entice shoppers to visit in non-busy times of the week. Shrink the stores as you tune the assortments to reflect real demand. Retailers with lots of stores would be smart to empower their close proximity stores to work together to serve their mutual customer. For example, the largest store in a market would have, by design, a higher in-service levels, more key items, and full assortments. That way, the dominant store would serve the needs of the smaller stores customers either through on demand transfers or referral sales. With the advent of Internet Shopping there is no reason a physical retail store can’t double current sales per square feet. The trick is to offer at each store the complete assortment to the consumer independent… Read more »
W. Frank Dell II
Guest
11 years 8 months ago

On the macro level, with the combination of a recession and increased online shopping, one would think we have too many stores. In comparison with Western Europe, the American market is significantly over-stored. I view the issue differently. We have too many out-of-date concepts, where the market place has changed and retailers have not. We have too many poorly run and executed stores. These are the ones the consumer is helping to close by not shopping in them. There is plenty of room for good concept stores.

Ian Percy
Guest
11 years 8 months ago

Back when my kids were little and in soccer I noticed that every kid on every team always ran in mass after the ball. So the entire team would run to one side and then to the other as if tied together. That’s what retail (and pretty well everyone else including many consultants) has done. One mall looks like another mall unless it’s got a roller coaster or shark tank in it. Everything looks the same because they all follow each other. Every once in a while a coach would teach some of the players to not follow the rest and instead stay open because there was a better chance of scoring that way. That team usually ended up winning 28 to 2.

Yes there is way too much of everything that looks the same. What there is not enough of is uniqueness, originality, differentiation. We try to be all things so we don’t lose a potential customer and in the process, lose them all.

James Tenser
Guest
11 years 8 months ago

The shopping mall paradigm, which was optimized for economic realities of the 1980s, is showing its age and inflexibility, as Americans lose interest in shopping-as-recreation. Conspicuous consumption is giving way to conscientious consumption. Thrift is the new style.

Large chains have been closing stores strategically. Some retailers are going out of business entirely or reorganizing under Ch. 11 protection. There is a resulting glut of retail space in most parts of the country, and Econ. 101 tells us that oversupply leads to a lowering of prices.

So it’s bad to be a commercial landlord these days, but not so bad to be a retail operator with cash on hand, as real estate bargains abound. Some leaders will press this advantage, and gain share in the bargain.

But there’s a caveat too: The present economic conditions sharply highlight the risks of pursuing a retail strategy centered on real estate and expansion. I believe the next frontier for retail financial performance will be about store operations and merchandising compliance.

Mary Baum
Guest
Mary Baum
11 years 8 months ago

OMG. I think St. Louis (the metro area) was over-stored two years ago, before the recession hit. We have an entire, brand-new strip center not fifteen minutes from where I sit that has never had its first tenant in almost half of its square footage.

I agree that tired concepts and the recession have contributed. But I think the culture is also changing. We’re more aware of our gasoline use and our time–and broadband penetration is finally reaching the point that for a lot of things, it just makes more sense to click over to Staples or Amazon, or Talbots, for something we buy regularly and need more of–instead of interrupting our train of thought and dragging our sorry asses and $3/gallon gas down to the mall or the big-box center at lunch (if we even bother with lunch…)

Oh. And fashion retailers? J. Jill and Eddie Bauer? You don’t do your sales per square foot any good if I have to buy my plus-size pants online. Just sayin’.

Herb Sorensen
Guest
11 years 8 months ago

Certainly there is a surfeit of stores, given current economic conditions. Bear in mind that the surfeit of stores was a direct consequence of a “surfeit” of prosperity. But it shouldn’t be any surprise that there is a powerful cohort in America that is anti-growth and development, and actually quite pleased with the pain.

I’m not going to jump over into frankly political commentary (even if it is warranted,) but simply want to remind that RETAILING IS AT THE CUTTING EDGE OF SOCIAL EVOLUTION–ALWAYS HAS BEEN AND ALWAYS WILL BE. We are likely to return to a consumptive/productive society with the need for even more stores. And this is good. Notice that the most free societies are also the most productive, richest, and most consumptive. They also happen to be the cleanest ecologically as well.

Here’s to even more stores in our future!

James Kenderdine
Guest
James Kenderdine
11 years 8 months ago
Some portion of the closings can be attributed to the mortgage bubble. Interest rates were low encouraging developers to put retail pads on any vacant piece of land that had decent demographics within a 10 to 15 minute drive/walk. Lenders could “pack and ship” the mortgage upstream as long as the numbers looked reasonable. Looking back at some of the stock opinions of the last decade, a lot of attention was paid to expansion plans, the supply chain economics of many close locations, so retailers were rewarded, in a sense, by the financial markets for openings. Consumers joined in, drawing equity from their homes and building credit card debt chasing the good life. Together it was like a High School Prom Night–everyone was in a fantasy world. Well now it’s daylight and a lot of things that look magical during the night don’t look as attractive. Plus, the bill for the evening has come due–and it’s a whopper! I suspect my grandchildren will still be paying on it long after I am gone.
Sam Horton
Guest
Sam Horton
11 years 8 months ago

There are way too many stores that breath the same homogeneous air. When you look at grocers, they all stock the same Coke, Tide, Kraft, Pillsbury brands–what’s unique about that? Why is that? Because many have squeezed out the smaller vendors, the ones who provide the innovation and uniqueness. We have chased the bigger vendors with huge marketing and trade budgets in the name of efficiency and risk avoidance.

Innovation is needed to explore new products and enhance the customer experience. The shakeout will continue until such time that the consumer will see this differentiation. Then we will have the right number of stores and the right kind of stores. The consumer is not whispering, they’re yelling loud and clear.

Bill Emerson
Guest
Bill Emerson
11 years 8 months ago
There is no question that there are some great real estate deals out there. There is also a very good reason for this–too much selling space and inventory chasing too little demand. Worse, there are many who think that there is a bust coming in commercial real estate that will make the residential implosion look mild. It seems to me that before a retailer started looking at some of these deals, there are several questions to ask, namely:– Am I in a solid cash position?– Has my business stabilized? Am I seeing any growth?– Am I confident that my strategy is solid? Is it working? Am I well-positioned and prepared for an economic recovery? If the answer to these questions is yes, then:– Are there specific opportunities to expand in the markets that I’m already in?– Are there markets that I am not in where I believe I could succeed?– Do I think now is the time to take advantage of these deals or will the deals get better if I wait? If, and only… Read more »
Tim Henderson
Guest
Tim Henderson
11 years 8 months ago

I don’t agree with the blanket statement that this industry is over stored. What I do believe is that certain chains are over stored. In other words, we seem to have a lot of the wrong thing and not enough of the right. The over-stored chains need to be more disciplined and dedicate more time and effort to a real strategy for store roll out. And the chains that truly offer a unique shopping experience–but have limited sites–should consider expanding into new areas.

That said, what this study really indicates to me is that the retail industry as a whole is nowhere near being out of the woods. I hear way too often about merchants and manufacturers who believe we’re entering the post-recession and consumers will soon return to their free-spending ways. We may be entering the post-recession, but according to this study and consumer shopping behaviors, retail is still in the midst of industry-wide change.

Craig Sundstrom
Guest
11 years 8 months ago

It has long been agreed–at least on this board–that there are “too many” stores, at least by measures such as historical norms, sales/SF data and (in some markets) vacancy rates.

But this raises obvious questions such as why this has come to pass, and what should be done with people formerly employed when building yet more space. Perhaps they can now be employed to tear it down…ah yes, planned obsolescence: coming from the car lot to a building–soon to be a vacant lot–near you.

William Passodelis
Guest
11 years 8 months ago

I really agree with Mr. Dell–there are SO MANY tired or dead concepts out there that will likely continue to spiral downward as there are better location opportunities for retailers and as the retailers move on and, likely, out to “newer” locations.

The tired and dead concepts, however, apply both to the malls and centers as well as many of the retailers within them.

Some newer development opportunities though are being built with the thinking and planning of twenty to thirty years ago and are stale when the ribbon is cut.

There are some glimmers of freshness in retail planning and construction but it seems to be too easy for developers to revert to reduplication of old designs.

Also, there are chains which are overstored. I expect these chains will likely shed and trim stores in the near future.

I agree also that we will likely see more bankruptcies and closures on that basis. That will undoubtedly have the greatest near-term effect and will worsen overall status with many (half dead) malls and centers.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 8 months ago

Let me come at this from the perspective of somebody who spends much of his time working with smaller and independent retailers. Because these retailers primarily deal in goods that are highly discretionary, they’ve taken the hit far harder than the majors. This segment of the industry is perhaps going to see a higher percentage of failures than any other, not necessarily because they were poorly run, but because spending patterns have shifted so decisively away from them.

Joel Warady
Guest
Joel Warady
11 years 8 months ago

We have been over built in retail for years. Having a variety of stores to select from is great. But when you see a Rite Aid, a CVS, and a Walgreens located on 3 corners, on the same street, in the same town, it becomes absurd. We have seen the same situation with Staples, Office Depot, Office Max, and the examples can go on.

The fact is, it is great that we are a society of consumers, but there is no need to have the numbers of stores that we currently have. Think of the energy wasted to maintain the stores, and think of the landscape and natural beauty that we have lost. I am far from a tree-hugger, but the fact is, we are going to end up with 10,000 shuttered stores, which will result in a pretty ugly and desolate America. Retailers should think hard about additional store locations until we can absorb the ones that we have.

Bernice Hurst
Guest
11 years 8 months ago

Pardon my ignorance/naivety, please, but if there were fewer stores, would there be fewer people in debt and a less serious recession?

Mark Johnson
Guest
Mark Johnson
11 years 8 months ago

Are there too many stores? Let’s see, there are 7 large format grocery stores within 4 miles of my house? Hmmm? Maybe? Want to drive another 1 or 1 1/2 miles you get 4 more grocers? Hmmm?

This is a definite chicken or egg problem, is the lack of spending causing the realization they the “real estate” entities within these retailers overspent on locations and an opportunity to be lean? Or is it that there is too much building and even a significant uptick in spending could not be addressed?

Scott Knaul
Guest
Scott Knaul
11 years 8 months ago
What’s happening in the retail environment is equivalent to a forest fire, tragic on some levels but necessary to sustain the overall environment. A forest fire is actually a part of nature’s cleansing process which reduces the number of pests and the occurrence of diseases. Fires reduce the litter of dead and decaying leaves, logs and needles that accumulate on the forest floor. Another effect of fires is to reduce or eliminate the canopy, resulting in increased sunlight that stimulates regeneration from seeds and roots. Now that the botany part of the reply is finished you can draw a direct correlation to the retail environment. For a while retail companies grew really big, really fast. It has lead to organizations having too many locations without a good infrastructure. Now stores and entire organizations are closing as a result because they don’t have the discipline or operations to support themselves. It’s retail’s way of eliminating disease and reducing the deadwood. What will happen is the stronger companies will thrive and newer companies will emerge.
Herb Sorensen
Guest
11 years 8 months ago
OK, I need to add to my earlier comments to provide some balance to the criticisms about the “sameness” of so many stores and their merchandise. It is important to recognize the growing return of stores to their original purpose – the communal pantry. And that means more than food. The small store movement is gaining strength, because people simply don’t want to bother inventorying all that crap, whether potato chips or shoes, at home. Why not just buy what you need, when you need, at your convenient grocer or haberdasher? This may be straining the point for the haberdasher, but the principle is still solid. All this seeking for artsy/creative retail stores is a direct parallel to SKU proliferation within the store. It creates “long tail” with minimal immediate commercial significance, when most successful products are “big head.” Pay attention, MOST PEOPLE ARE BIG HEAD PEOPLE, TOO! So the old song about all those boxes, was not just about ticky-tacky tract houses, but a reflection that as much as people crave individuality and uniqueness,… Read more »
John Fox
Guest
John Fox
11 years 6 months ago
The reality is that we have too much space for the given market conditions. The demand for space is highly correlated to population/population growth and income levels. In this decade the industry built retail space that took the per capita shopping center square footage from 21 in 2000 to 23.5 today. This is a compound annual growth rate of 1.3%. Given that, the population was growing at about 1% per year in the U.S. and income/wealth was also growing, this seems appropriate on the surface. However, in the current economy, incomes and wealth are down substantially and we have lost most of the jobs created in this decade. We are now over-stored and retail stores are closing and many shopping centers are in distress as a result. The supply of space now far exceeds demand. Roughly half of the space that was built in this decade was off-mall, big box. We are seeing the direct fallout from this trend with the bankruptcies of Circuit City and Linens ‘N Things and store closings by other box… Read more »
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