Why aren’t retailers closing more stores?
Faced with weaker brick and mortar traffic as well as a surge in online spending, many retailers this year have moved to shutter locations. But, according to the Wall Street Journal, a few factors are preventing retailers from closing the amount of stores that may be required to realign brick and mortar supply with demand.
Green Street Advisors earlier this year asserted that hundreds of department stores have to close for malls to restore levels of productivity reached more than a decade ago.
Terry Lundgren, Macy’s CEO, also hinted last week after a disappointing first quarter that more Macy’s doors may close as he sees many shopper journeys starting on their smartphones.
“I don’t know what the number (of stores) is. But I know there needs to be fewer of them,” Mr. Lundgren said. “We’re offering as many shoppers as we possibly can the ability to have a full omni-channel experience of using our online capabilities plus our store experience.”
A primary reason more stores aren’t closing, according to the Journal, is the cost of pulling out of lengthy leases.
Dick’s Sporting Goods cited lease risks as the reason it wasn’t aggressively looking to take over many leases of the liquidating Sports Authority.
“You can make a bad buy from a merchandising standpoint and you can mark it down and do whatever you need to do with it to get it out of the system,” said Ed Stack, chairman and CEO, on his company’s first quarter conference call. “For bad real estate, you’ve got it for 10 years.”
The Journal article also pointed to a research note from Citigroup’s Paul Lejuez pointing out that retail executives aren’t motivated to close doors since their compensation is tied to adjusted operating income and top-line growth.
Finally, retailers are slow to close stores because of an innate “glass half-full” view of the business and a reluctance to cede market share.
Wrote Miriam Gottfried of the Wall Street Journal’s “Heard on the Street” column, “Investors should hope retailers start to recognize the windows that can open by closing doors.”
- Retailers Need to Close Some Doors to Survive – The Wall Street Journal (sub. required)
- Macy’s CEO Defends Role of Stores in E-commerce Era – Fortune
- Dick’s Sporting Goods First Quarter 2016 Conference Call – Seeking Alpha
- Are store closings a remedy for what ails department chains? – RetailWire
DISCUSSION QUESTIONS: What do you see as the main reasons retailers are delaying the inevitable closing of stores? Do you agree the slow pace of store closings hurting retail’s underlying fundamentals in the next few years?