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Retail Rap: Silver Lining for Some Store Closings


In an article that appeared in National Real Estate Investor (NREI) Online on April 10, author Elaine Misonzhnik describes the recent store closure announcements from Walgreens and Pier 1 as part of a larger pattern of retailers “pursuing portfolio optimization and an omnichannel approach.” While I generally agree with that statement — and with the notion that increasing pressure from online sales growth is contributing to a more competitive brick-and-mortar environment — I was reminded once again of just how different the dynamics behind store closings can be.

I think there’s a tendency to lump all store closings together, when the reality is much more nuanced and complex. Not all store closings are created equal, so I wanted to break the recent announcements down into several different categories.

Take Walgreens and Pier 1, for example. These both fall into the portfolio optimization category of store closures. Even here, however, there are noteworthy differences. Walgreens has decided to close 200 stores, which may sound like a large number, but it’s only a drop in the bucket for a chain that operates more than 8,200 stores nationwide. As the NREI article mentions, Walgreens is also planning to open around 200 stores in the next year. To me this isn’t so much a series of closures as part of the healthy portfolio balancing process. Additionally, we haven’t seen many Walgreen’s stores close in a very long time — so in a sense Walgreens is “overdue”. Most likely, the stores that will close are burdened by a mediocre location, aren’t the right size, don’t have the prototype layout, or are lacking a drive thru pharmacy.

Unlike Walgreens, Pier 1 isn’t announcing any corresponding openings to match their planned 100 store closings. But I did think it was interesting that these closings won’t be coming all at once, but will instead be gradually phased out as they come up for lease expiration over the next three years. Is a failure to renew a lease even a true closure? Pier 1 has been a struggling brand for some time now, yet they really haven’t closed as many stores as expected so far. In this case, again, it may be less of a negative indicator than first meets the eye.

Other store closings are less strategic, and are driven by more direct competitive pressures. Wet Seal, which filed for bankruptcy and announced in January that it would be closing 338 of its stores (about 2/3 of all locations), is one example of a brand struggling in the face of strengthening competition in a competitive segment. Cache, another fashion retailer facing similar pressures and filing for bankruptcy, announced in March that it would be closing its 150 stores nationwide. Teen retailer Delia’s is also shutting its doors, largely as a result of category competition. While Wet Seal and Delia’s both focus on teen apparel and Cache is focused on adults, both have fallen prey to the same phenomenon: a challenging apparel environment where affordable “fast fashion” brands like H&M, Forever 21 and Uniqlo have taken a huge share of the market away from some of the more traditional brands.

A third category of store closure includes those closings that take place as a result of mergers. The classic recent example of this is the Office Depot and Office Max merger. The recent acquisition of Office Depot by Staples for $6.3 billion will obviously contribute to what was already a contraction in the office superstore arena — a process that has been going on for almost two years now simply because there were and are so many Office Depot, Office Max and Staples locations in the same market. The average box size of those office superstores, somewhere in the neighborhood of 18,000 sq. ft. - 25,000 sq. ft., is actually a relatively valuable size. Brands like Sprouts, Total Wine and Fresh Thyme will likely continue to be prime candidates enter those vacancies. I’ve talked in the past about how the size of the space makes a difference in terms of how easy it is to re-lease, but these days the medium-sized boxes are filling up fairly well. It’s the specialty mall tenants that are proving tougher to re-lease. We are not really seeing a huge amount of new mall tenants, especially in more moderate centers.

The fourth category of store closure involves brands that have floundered because of an inability to maintain a point of differentiation between themselves and the competition. RadioShack, which has been all over the headlines lately, is a prime example of this phenomenon. RadioShack’s point of differentiation used to be convenience, and the fact that so many other store types (supermarkets, drug stores, larger discount stores) started selling similar products has been incredibly damaging to the venerable electronics brand. In that context, Sprint’s deal to take over and co-brand some RadioShack stores strikes me as somewhat of a puzzler.

No matter what happens with the RadioShack name going forward, it’s one thing to come into a store or to change the name on the front, but the actual branding process is much tougher — and can take time. These days, Sprint is the stronger brand, and until and unless Sprint can do away with the Radio Shack name completely, I think it’s unlikely to make much headway. After all, we may think the Sprint-RadioShack partnership is a big deal in the retail real estate industry, but until the name changes, do consumers know? Do they care? I don’t know about you, but I think it will be fascinating to watch and see how this particular scenario plays out in the weeks and months ahead.

How do you see the recent store closings affecting the retail real estate marketplace? Is there more healthy “pruning” or non-strategic forced closures? I’d love to hear your feedback! Leave a comment below or reach out via email: [email protected].

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