The tidal wave of store closures is far from over

New York Weekend Edition /
May.May 13, 2017 11:30 AM

Department stores are planning to close even more stores this year on top of the tidal wave of closures announced over the past couple of months.

Sears has already started closing more stores in addition to the 150 it announced earlier this year. Over the past several weeks, the company has announced nearly two dozen new closures.

JCPenney and Macy’s, which collectively are planning to shut down more than 200 stores this year, also said this week that they were assessing additional locations for closure.

“There continues to be opportunity for us to monetize some assets,” a JCPenney executive told analysts on an earnings call on Friday.

He said the company was continually assessing its store base to determine whether additional locations were worth more as real estate than an operating store.

In general, the US has way too many stores, according to Macy’s CEO Jeff Gennette.

 

“We’ve known for some time that the United States is over-retailed compared to other markets, so it’s not surprising to see the contraction in retail square footage,” Gennette said on a call with analysts on Thursday. “And it will take some time to tell how the consolidation and the closure of stores and, in some cases, entire brands will impact us.”

The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia, the next two countries with the most retail space per capita, according to a Morningstar Credit Ratings report from October.

Like JCPenney, Macy’s is looking at whether there are “advantageous opportunities for us where the value of that real estate” for any particular store is “greater than the value of the retail that we do there,” Gennette said.

“I’m not going to say we’re not going to close more stores,” he said, though he added that he felt the company had reached the “right level” of stores.

“We do have to stabilize the core brick-and-mortar business because still the bulk of our business is being done in our stores,” he said.

According to Jan Kniffen, CEO of the consulting firm Worldwide Enterprises, Macy’s right level would involve at least 100 more closures.

The market “probably wants to see another 100 Macy’s stores close,” Kniffen told CNBC on Thursday.

In late January, Macy’s operated 673 stores, down from about 800 in 2014. By the end of this year, the chain’s store base is expected to drop to about 600. JCPenney, in comparison, will operate about 875 stores after its closures this year, down from 1,062 in 2014.

Sears’ store count has dropped by 17% since 2014, to 1,430.

It’s unclear how the closures of these department stores — also called anchor stores because they drive customer traffic to malls — will affect the rest of the retail industry.

When an anchor store closes, smaller stores in the middle of the mall tend to follow.

“Closures feed on themselves, sometimes leading to an abandoned shopping area,” the professors and retail experts John Clapp of the University of Connecticut and Tingyu Zhou of Concordia University wrote in a recent report. “The fight to the death is all too real in 2017 for many national and regional chains.”


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