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Store closings are part of the business, but is this business as usual?


2017 is just two months old, but we have already experienced what feels like a year’s worth of major store closing and liquidation announcements from national brands. This spike in store closings seems to have rattled retail industry professionals, and has gotten retail analysts and observers talking about big shifts – and thinking not only about what comes next, but how painful the transition might be in the meantime.

Jeff Green

J.C. Penney just announced it will take out 140 stores by June. Over the past few weeks The Limited has closed its doors, liquidating its assets and filing for bankruptcy, American Apparel is closing all of its 110 stores, BCBG is closing stores and restructuring, The Andersons is closing down its stores and going out of business, Wet Seal is closing down all of its locations, Macy’s announced the closure of 68 more stores, and Sears announced that it will be closing 150 Sears and Kmart locations.

To be fair, the first few weeks of the new year are always a turbulent time, when post-holiday closing announcements come out in a flurry of activity. But the dramatic uptick in closings feels different this time, and there seems to be an air of concern – perhaps even bordering on panic–across the industry. The topic is dominating conversation in and around the industry. What’s happening with Macy’s? What’s next for Sears? This seems to be all that people are talking about. It’s almost as if, for the first time, these announcements have prompted a broad-scale realization of the fact that shopping patterns are changing in fundamental ways.

This is hardly a new development, but it does feel like we might be at a tipping point: where big-picture trends come into sharper focus and events that have taken years to unfold are beginning to pick up some critical and game-changing momentum. Part of the reason for that sense is that there is such a large number of store closings and liquidations all at once, but it’s also that these aren’t small players, these are national brands (in some cases iconic names) that are consolidating or going out of business. We have been talking about the challenges facing brands like Macy’s, Sears, Kmart, and JC Penney for years now, but as closures pick up steam, the reality of what the implications of those challenges might be is sinking in, and those theoretical discussions are turning into conversations about how to deal with the real-world ramifications of these changes. It’s also worth remembering that this is just the beginning for Macy’s and Sears, both of which will likely be announcing more store closings later in the year.

Another reason why this feels different – and why so many retail professionals are paying very close attention – is that more stores are liquidating and going directly into Chapter 7 as opposed to declaring Chapter 11. Other brands (including The Limited, American Apparel, and Wet Seal) declared Chapter 11 before being forced to liquidate when they couldn’t secure financing. I can’t help but wonder if that’s happening at least in part because private equity firms are becoming increasingly leery about getting into retail. In an eyebrow-raising move that made headlines both inside and outside the industry, Warren Buffett recently sold all of his shares in Wal-Mart, dropping a cool $900 million in stock.

Despite the accelerated pace of closures and growing concern in some circles, the structural issues driving these big changes have not really changed. It’s not exactly breaking news that department stores are struggling, and have been for quite some time. The biggest issue on my mind remains a lack of any real point of differentiation–particularly at a time when online and discount operators have continued to carve out an increasingly large slice of the retail pie.

Sears, which sold its Craftsman brand and is looking to sell its Kenmore brand, and which continues to see year-over-year comp store declines of around 10%, has been the poster child for these challenges. There are even some rumors floating that Sears won’t be around by the end of the year. I’m skeptical that that’s the case. Sears has so much valuable real estate it is in no immediate danger of going under and could go on like this for a very long time, even with a retail operation that is losing money and bleeding market share. The big question is, when will Chairman and CEO Ed Lampert decide that he doesn’t want to subsidize the retail stores anymore? For years now I’ve determined that with little to no value on the retail operating company side, Sears could leverage the substantial value in its real estate assets and become a real estate holding company – and a very strong one. In addition to closures, Sears is already consolidating some of the spaces in its existing stores, moving from two floors to a single-floor format in cities like Cleveland, Phoenix and Los Angeles.

While big names have struggled to evolve, the continued growth of online retail remains the digital elephant in the room. It’s interesting to note that online sales were strong over the holidays, and while that strength isn’t necessarily a direct cause of closings, it certainly highlights the impact of a trend that has been building for some time now. Hence, my comment about a tipping point. I think it’s also important that online shopping is not just for young consumers anymore. Older shoppers are becoming increasingly comfortable with technology, and the phenomenon is expanding in a way that clearly transcends age. At the same time, younger folk are spending less time at malls and with traditional retailers – especially department stores. This store format just hasn’t been able to figure out how to combine retail shopping with the experiential element that younger shoppers prize.

The bottom line is that this is unlikely to be an anomaly or a blip on the radar screen. These closings are the result of a significant structural shift in the industry, and it’s something that has been building for some time now. We aren’t done seeing store closures, either. Expect to see more closing announcements from both the brands listed above and from around the industry. If I’m right, and this is the beginning of a true tipping point, the pace of change will continue to accelerate in the year ahead. For industry analysts and observers such as myself, the scale of what is clearly a seismic shift means that there isn’t much point to forecasting beyond 2017. The retail landscape will almost certainly look very different at this point next year. Buckle your seatbelts, because we are just getting started.

Jeff Green, President and CEO of Jeff Green Partners, provides analytical and interpretive services for retailers, property owners, developers, and municipalities. He can be contacted at [email protected].

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