ⓘ Retail apocalypse

                                     

ⓘ Retail apocalypse

The retail apocalypse is the closing of numerous North American brick-and-mortar retail stores, especially those of large chains, starting around 2010 and continuing onward. In 2019, US retailers announced 9.302 store closings, a 59% jump from 2018, and the highest number since tracking the data began in 2012. As of January 31, 2020, over 1.200 stores have been closed or are scheduled to close during 2020, which could lead to over 14.000 stores closures in 2020. Over 12.000 physical stores have closed due to factors including over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits outside holiday binge spending, delayed effects of the Great Recession, and changes in spending habits. North American consumers have shifted their purchasing habits due to various factors, including experience-spending versus material goods and homes, casual fashion in relaxed dress codes, as well as the rise of e-commerce, mostly in the form of competition from juggernaut companies such as Amazon.com and Walmart. A further late 2017 Business Insider report by Kate Taylor dubbed this phenomenon the "Amazon effect," and calculated that Amazon.com was generating greater than 50% of the growth of retail sales.

The most productive retailers in the US during the retail apocalypse are the discount superstores Walmart and Target, the low-cost "fast-fashion" brands, off-price department stores Ross Stores and DDs Discounts, Marshalls and Burlington and dollar stores e.g., Dollar General and Dollar Tree. At least one private equity firm, Sycamore Partners, has made money buying assets from brick-and-mortar chains during the retail apocalypse. Pop-up retail, including seasonal retailers such as Spirit Halloween, operating temporarily in vacant spots after companies go out of business have become more common during the retail apocalypse.

Research from IHL Group finds that when a retailer closes a lot of stores, it says more about the individual retailer rather than the retail industry overall. In 2019, the 20 stores announcing the most closures represent 75% of all closures. IHL found that for each retailer that is closing stores in 2019 more than 5 retail chains are opening stores, which is up from the 3.7 ratio in 2018. IHL also reported that the number of chains adding stores in 2019 has increased 56%, while the number of closing stores has decreased by 66% in the last year.

                                     

1. History

The term "retail apocalypse" began gaining widespread usage in 2017 following multiple announcements from many major retailers of plans to either discontinue or greatly scale back a retail presence, including companies such as H.H. Gregg, Family Christian Stores and The Limited all going out of business entirely. The Atlantic described the phenomenon as "The Great Retail Apocalypse of 2017," reporting nine retail bankruptcies and several apparel companies having their stock hit new lows, including that of Lululemon, Urban Outfitters, American Eagle. Credit Suisse, a major global financial services company, predicted that 25% of U.S. malls remaining in 2017 could close by 2022.

Since at least 2010, various economic factors have resulted in the closing of many North American stores, particularly in the department store industry. For example, Sears Holdings had more than 3.500 stores and 355.000 employees in 2006. By the end of 2016, Sears operated 1.430 stores. In October 2018, Sears filed for bankruptcy and announced they would close an additional 142 of their 687 stores. At the time of filing, Sears had 68.000 employees.

The retail apocalypse has had a domino effect on suppliers; Hasbro, for example, cited the loss of the Toys "R" Us chain as a major cause for lost revenue and layoffs the company imposed in October 2018.

                                     

2. Factors

The main factor cited in the closing of retail stores in the retail apocalypse is the shift in consumer habits towards online shopping. Holiday sales for e-commerce were reported as increasing by 11% for 2016 compared with 2015 by Adobe Digital Insights, with Slice Intelligence reporting an even more generous 20% increase. Comparatively, brick-and-mortar stores saw an overall increase of only 1.6%, with physical department stores experiencing a 4.8% decline.

Another factor is an over-supply of malls, as the growth rate of malls between 1970 and 2015 was over twice the growth rate of the population. In 2004, Malcolm Gladwell wrote that investment in malls was artificially accelerated when the U.S. Congress introduced accelerated depreciation into the tax code in 1954. Despite the construction of new malls, mall visits declined by 50% between 2010–2013 with further declines reported in each successive year. A third major reported factor is the "restaurant renaissance," a shift in consumer spending habits for their disposable cash from material purchases such as clothing towards dining out and travel.

Another cited factor is the "death of the American middle class," resulting in large-scale closures of retailers such as Macys and Sears, which traditionally relied on spending from this market segment. Particularly in rural areas, variety stores such as Dollar General, once thought to be unaffected by the apocalypse since they have continued growing rapidly, are now perceived as being at best a symptom of the phenomenon, and at worst a direct cause of rural, independent retailers collapsing, unable to compete with the lower margins that national chains can sustain.

The final factor in poor brick-and-mortar sales performance is a combination of poor retail management coupled with an overcritical eye towards quarterly dividends: a lack of accurate inventory control creates both underperforming and out-of-stock merchandise, causing a poor shopping experience for customers in order to optimize short-term balance sheets, the latter of which also influences the desire to understaff retail stores in order to keep claimed profits high. Furthermore, many long-standing chain retailers are overloaded with debt, often from leveraged buyouts from private equity firms, which hinders the profitable operation of retail chains.

                                     

3. Affected retailers

Sears Holdings filed for bankruptcy protection in October 2018 and planned to close about 142 of its 700 stores.

Borders Books closed all stores and filed for bankruptcy in 2011. Rival bookseller Barnes & Noble acquired Borders trademarks and customer list.

Toys "R" Us filed for bankruptcy and closed all its US stores in June 2018.

Bloomingdales in 2012 announced it would close four stores, including at the Mall of America in Bloomington, Minnesota. Additionally, a home store at Oakbrook Center in Oak Brook, Illinois and full-line stores in Perimeter Mall in Dunwoody, Georgia and at White Flint Mall in North Bethesda, Maryland have closed their doors. On January 3, 2013, Bloomingdales announced that they would close the Las Vegas Home store at Fashion Show Mall.

GUESS? closed 60 stores in 2017 and was expected to close more than 100 stores in 2018, leaving roughly half of its high of 400 stores.

J. C. Penney announced in February 2017 that it would close 138 stores in 2017. Liquidation sales began on May 22, and stores closed by July 31. Another 8 stores and a distribution center closed in 2018. J. C. Penney announced plans to close a total of 30 stores in 2019.

J. Crew closed 61 stores in 2017 and closed additional stores in the first quarter of 2018.

Payless ShoeSource plans to close all its 2.000 stores in the US and Canada, and is going out of business.

Topshop is closing all its US stores as its parent company, Arcadia Group, seeks to restructure after filing for bankruptcy.

Barneys New York plans to close 15 stores after filing for Chapter 11 bankruptcy. Authentic Brands Group acquired the chain and licensed it to, and close the last seven stores.

Forever 21 filed for bankruptcy in October 2019 and said it would close up to 178 in the US and 350 stores globally.

A.C. Moore announced in November 2019 that all 145 locations will be closed.

In February 2020, Macys announced it would close 125 department stores over the next three years, following a sales decline of 3.9% at stores open for at least a year, which Macys CEO Jeff Gennette said was "steeper than we expected."

Express, Inc. announced 31 store closures in January 2020; and 35 more stores will close by the end of January 2021. All other Express stores will close by 2022.

Pier 1 Imports filed Chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court in February 2020.

On March 5, 2020, Art Van Furniture announced that it would be closing all of its company-owned stores as it plans to file for chapter 11 bankruptcy.



                                     

4. Retailers succeeding in the apocalypse

In the second half of 2017 and throughout 2018, the media and analyst community began recognizing retail as an industry in transition, rather than demise. Bloomberg said in May 2018 that the death of retail has been greatly exaggerated and Telsey Advisory Group stated that retail is not dead in August 2018 following news that the SPDR S&P Retail ETF had risen 13% year to date to a record high, more than double the return of the S&P 500 Index.

In June 2018, SeekingAlpha reported that 90% of purchases were still made in physical stores. SeekingAlpha noted that the top ten retailers are mostly brick-and-mortar operations.

Numerous online retailers including Warby Parker, Untuckit, Casper Sleep, Away, Wayfair and The RealReal have announced plans to open their first physical stores and expand their existing footprints in 2018 and beyond.

JLL reports that digitally native brands will open 850 stores in the next five years. These retailers are finding that opening a physical store has a halo effect on web traffic: A study from the International Council of Shopping Centers shows that a new store increases traffic to that retailers website by an average of 37% and drives up share of web traffic within that market by 27%.

From 2014 to 2020, beauty supply store Ulta Beauty approximately doubled its number of stores, from 675 in 2014 to 1.254 retail stores across 50 states as of February 1, 2020.

Particularly in rural areas, dollar stores variety stores such as Dollar General, Dollar Tree and Family Dollar have continued growing rapidly.