More pain in store
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Abad week for interna tional retail, then. UK retailer Poundworld has fallen into admin istration after its res cue plan failed, putting 5,100 jobs at risk. Department store chain House of Fraser is to close 31 of its 59 shops, affecting 6,000 jobs — in a further blow for Britain’s struggling High Street. Across the Atlantic, Hudson’s Bay Co, the owner of Saks Fifth Avenue, says it will close as many as 10 Lord & Taylor stores — including its 104-year-old Manhattan location.
Are these retailers running into trouble for the same reason?
Yes. And no. They’ve all been hit by the usual suspects: weaker consumer confidence, an increasingly competitive market, the shift to online shopping and high product cost inflation. This, then, has meant underperforming shops. Also, what we’re seeing in not only these two markets, but others as well, is that retailers overexpanded during the boom years.
Where the trio’s crises differ is around weakness of the pound (in Poundworld’s case), losing relevance and suffering from a lack of investment (House of Fraser) and debt obligations (Lord & Taylor).
To be sure, retail globally is in a state of upheaval. In the past three years there’s been a record number of store closings and bankruptcy filings.
Locally, we’ve had our own shakeout: Stuttafords, Platinum Group (Hilton Weiner, Jenni Button), Melissa’s The Food Shop, Look & Listen, inter- This “retail apocalypse”, as it has become known, is about more than just adapting to changing consumer tastes, though. There are structural issues too. Nowhere have store closings been more acute than across the US retail industry. The reason — other than more people staying home and shopping rather than going to a mall — is that they have an excess of stores.
According to estimates from PWC, in 2015 (the most recent year with comparable data available ) the US had about 23.6 ft² of retail space per person available — that’s more than twice the amount in Australia, and roughly five times that of the UK and other European countries.
Stores in the US have also tended to be larger because rent is cheap in outlying areas — where the vast swaths of defunct retail space now sit. For a long time these stores could actually be operated efficiently due to lower energy costs. That’s not the case any more.
Ken Perkins, the head of Retail Metrics, thinks the housing bubble of the mid-2000s allowed consumers to take out tons of cash from their homes and spend robustly even though incomes were stagnant.
This, he says, masked the overstored nature of the retail landscape. It’s interesting (at least to me) that it’s not just department stores and apparel retailers that are taking a battering. Earlier this year, Jamie Oliver closed his upmarket Barbecoa steak restaurant in London’s Piccadilly.
He also shut down 12 of his 37 Jamie’s Italian restaurants as part of a rescue plan with creditors.
And in the US, restaurant chain Subway is projecting it will close roughly 500 sandwich shops.