Retailer bankruptcies on record pace

Online competition, changing consumer tastes turning some malls into deserts

PITTSBURGH — The idea of spending a leisurely few hours of the weekend at the mall — browsing aisles for a new pair of jeans and shoes and hitting the food court — is going out of style.

The latest in a growing list of retail casualties, mall-staple and teen apparel company rue21 Inc. filed for Chapter 11 bankruptcy reorganization earlier this month, joining the ranks of Payless, American Apparel, Aeropostale, hhgregg, and The Limited, which have all recently declared bankruptcy.

Rue21’s decision came one month after the chain, headquartered outside Pittsburgh, began closing about 400 of its more than 1,100 stores in 48 states.

This year, retail bankruptcies have set a record pace. According to S&P Global Market Intelligence, the number of bankruptcies early this year has already come close to the total in 2016. Between January and April, 14 retailers filed compared with 18 last year. The report was released before rue21 filed on May 15.

The primary factors putting the squeeze on retailers are known: more shopping is shifting online and consumer tastes are changing, with shoppers opting for gadgets or experiences over the trendiest jacket.

“It’s not new news that mall traffic is weak, but it continues to weaken,” said Christina Boni , vice president and senior analyst for Moody’s Investors Services. “Changing consumer behavior and e-commerce continue to weigh on performance.”

The result is that there are too many stores and too little customer traffic to keep them going.

And companies are trying to figure out the best way for them to adapt to a changing retail environment. Many are shrinking their store footprint, cutting costs and shifting their focus to e-commerce, but they are approaching those goals from different angles. Maybe that means shutting down stores. Maybe, in the case of Kohl’s, it means slashing store sizes instead.

Noting that each struggling company has its own story, “It is widely agreed that the U.S. is over-stored and that the solution for flat or declining in-store sales resides to a significant degree online, where the most sales growth is now taking place,” according to a recent report from S&P Global Market Intelligence.

American Eagle Outfitters, based in Pittsburgh, told analysts recently that it plans to move faster in shuttering some stores while aiming to capture online sales.

“We are looking to get more aggressive with store closings,” said Charles Kessler, global brand president . “We’ve been experimenting with closures of stores where we are able to really track sales migration and really analyze the relationship of the stores to our digital business.”

Still, American Eagle sees value in its brick-and-mortar stores. The store base is “the best place for us to drive new customer acquisitions” and 80 percent of online returns are taken back to stores, Kessler noted.

Dick’s Sporting Goods, also based in the Pittsburgh region, said earlier this month that it will slow its brick-and-mortar store growth, especially as big names like Macy’s, J.C. Penney, Sears and Kmart shutter more locations, adding more vacancies to the market.

Edward Stack, chairman and CEO, said Dick’s could get better rental rates if it waits to open new stores. He also noted that about 25 percent of the company’s stores will be up for lease renewal in the next three years, giving Dick’s the flexibility to decide which leases are best to renew.

Meanwhile, “Kohl’s has made the strategic decision to keep the number of store locations relatively unchanged — opting instead to reduce inventory and store sizes to achieve increased productivity,” Moody’s Investors Services said in a report released earlier this month.

Wal-Mart, the world’s largest retailer, is trying to go toeto-toe with Amazon.com for online sales domination. The Bentonville-based company reported in mid-May that online growth surged 63 percent in the most recent quarter.

Part of Wal-Mart’s strategy has been to shift more resources toward its digital assets as well as to buy up smaller online retailers, like Modcloth, to expand its reach.

Still, it takes time to find the right formula to amping up a store’s website and shipping capabilities.

Both Dick’s and American Eagle noted that shipping costs related to their online sales are putting their margins under pressure. That’s something a lot of retailers are dealing with.

Amazon.com’s free shipping and Prime membership perks have set a benchmark in the industry, Boni noted.

“Consumers are used to that,” she said. “It becomes more beholden on the retailer to get shipping costs down. How much of those costs they’re able to pass on is challenging in this environment.”