Friday, March 29, 2024
HomeretailRetailers are closing up shop. Here's why...

Retailers are closing up shop. Here’s why…

Another day, another retailer trimming its store count.

On Thursday, J.C. Penney said that it will close 40 of its locations—about 4 percent of its stores—this year. Then Macy's said it would close 14 stores in early spring. The announcements came one day after teen retailer Wet Seal said it will , and a bankruptcy judge in Delaware ruled that Deb Shops can shut down nearly 300 stores as part of its liquidation.

These are far from the only retailers whittling down their square footage.

A J.C. Penny department store with a store closing banner last April.Robert Barnes | Getty Images

When it filed for Chapter 11 bankruptcy protection last month, teen name Delia's said it will seek court approval to close all of its stores.

Also last month, Aéropostale said it would close 120 stores soon, a significant increase from the 40 or 50 it had originally planned. The company will also close about 125 of its P.S. by Aéropostale children's stores by the end of the month.

Sears, which is trying to turn around its performance after a string of declining sales reports, said last month it would accelerate the number of closings during the year, from 130 to 235.

And RadioShack, which is negotiating with lenders to gain approval to shutter 1,100 stores, said last month that it had closed 175 locations in 2014.

Several macroeconomic factors are driving this push toward a smaller store base, analysts said. For one, retailers simply have too many stores, particularly as more consumers shop online. For another, the demographics no longer make sense for stores to exist in certain suburban locations, as more young Americans are flocking to cities and staying there longer.

But it's more than just external factors. Many of the retailers closing stores are facing company-specific problems that in some ways forced them to downsize.

"When you have a fleet of 1,000 stores, you're going to have some in lousy locations," said Craig Johnson, president of Customer Growth Partners. "That's a tiny subset of the issue."

Supply outweighs demand

One of the biggest issues is that retail is simply overstored, Johnson said. He attributed this supply versus demand imbalance to the fact that retail sales growth has been too tepid to account for an increase in retail real estate. The situation developed even though 2014 saw limited new construction, according to Jesse Tron, a spokesman for the International Council of Shopping Centers.

"If we start most broadly, you have a retail sector that has basically been in slow-growth, no-growth mode for a number of years," Johnson said. "Meanwhile, store square footage has kept expanding."

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