USA TODAY US Edition
Closures spell opportunity
Specialty retail chains pounce,
Massive changes are coming to America’s malls as retailers transform to fight back against the wild popularity of online shopping.
Big-box and traditional department stores are closing stores or refocusing them to take advantage of changes in retailing. And increased competition is giving rise to savvy specialty chains.
Walmart, Sears, J.C. Penney and The Gap are among the chains that have announced widespread store closings. And chains like H&M, Zara and Primark, which specialize in rapid turnover of stylish yet inexpensive goods, are rising, powered by constantly updated fast-fashion formulas that keep customers interested when they can always go online for just about any purchase.
The simultaneous store closures and openings is the cyclical nature of retail. But the industry is coping with a phenomenon forcing change like never before. Online and mobile shopping is surging, and buying habits — especially among younger shoppers — have changed to favor experiences over physical stuff.
“As consumers shift more and more to online purchasing, retailers are stepping back and looking at right-sizing their portfolios,” says Michael Brown, head of the retail practice at consulting firm A.T. Kearney. “How many stores are required ... is still yet to be understood over the next three to five years.”
Some retail consultants say more than 1,000 stores in the U.S. is too many for any chain. J.C. Penney has 1,020 stores; Walmart, as the largest retailer in the country, has more than 4,600, Sears has about 1,700 Sears and Kmart stores. Other legacy companies like Macy’s are on the verge of excess with more than 700 locations.
“Anybody with a store count of over 800 stores in a mall is reducing store count,” says Ken Nisch, chairman of retail marketing consulting firm JGA. One of the reasons is many of the stores are no longer profitable.
This year, Walmart announced it would close 154 U.S. stores. Macy’s will close 36. Sears said it would speed up the closure of 50. Last year, J.C. Penney closed 39 stores; Macy’s closed 14; Gap closed 140; teen apparel brand Aeropostale closed 126; and Abercrombie closed about 60.
These companies have one thing in common: They matured and saturated the market in a less competitive time for retail, before online shopping shifted the sales dynamic; now, they are trying to reverse course and keep shoppers, and investors, happy with leaner business models that put digital capabilities and superior customer service at the forefront.
But don’t count out traditional chains. Even as they shed stores, chains like Macy’s and Walmart are opening new ones. In some cases, they are following the same path as the popular discounters and up-and-coming value-based brands. Macy’s, for instance, is venturing into the off-price space with stores called Macy’s Backstage. It opened six last year.
In others, they are following trends they have discovered within their own businesses. Walmart may be closing all of its smaller Express stores but has found continuing popularity for its largest stores and Neighborhood Markets, which are smaller stores focused on fresh grocery items and pharmacy services. It will open between 50 and 60 supercenters and 85 to 95 Neighborhood Markets this fiscal year.
Many of the changes reflect demographic shifts and stores stuck in locations that are now less desirable, says McGee. This is the time of year when store closures are typically at their peak, following the holiday rush. But don’t expect those glaring empty spaces in malls to stay empty for long, especially considering that overall consumer spending remains robust. Occupancy rates in shopping centers stood at 93.2% in the fourth quarter of 2015, according to ICSC data. That’s the highest year-end reading since the fourth quarter of 2007 when the occupancy rate was 94%.
Some specialty chains are hungry for store space. Sweden’s fastfashion brand H&M plans to open 21 stores in the U.S. this year after opening 57 last year. (It has 416 stores in the U.S.) Primark, a United Kingdom fast-fashion brand that made its U.S. debut in September in Boston, plans nine more by the end of this year. Zara’s has been relatively slower given it first entered the U.S. market in 1989, but it still opened nine stores last year to bring its count to 62, including two new flagship locations in New York and Hawaii.
“Anybody with a store count of over 800 stores in a mall is reducing store count.” Ken Nisch, chairman of retail marketing consulting firm JGA