Analyzing The Latest Round Of Retail Store Closures

As the old adage goes: Sometimes things get worse before they get better.

Perhaps that’s wishful thinking, but either way, retail has been in a lot of trouble lately, and whether we’ve seen the worst is yet to be determined.

Following a review of its nearly 11,600 worldwide locations, the U.S.’s largest private employer, Wal-Mart Stores Inc., said Friday that it will shutter 269 stores — 154 in the U.S. The decision, Walmart said, will impact 16,000 employees.

The sobering announcement followed Sears Holdings Corp.’s confirmation Thursday that it plans to close a number of Kmart and Sears stores in cities across the country, according to a Reuters report.

Howard Riefs, a spokesman for Sears, did not disclose the number of stores or employees who could be affected, but he noted that — like Walmart — Sears’ decision came after a review of store performance across its portfolio, including 952 Kmart stores and more than 700 Sears stores.

On the heels of Macy’s Inc.’s announcements last week of store closures and layoffs of possibly more than 3,000 associates, the retail industry is grappling to address the reasons for the latest slump.

For footwear and apparel, lackluster holiday sales and a late start of winter, with  unseasonably warm temperatures into early January, has led to industrywide inventory overages and heavy promotions.

Brands such as Ugg, Timberland, The North Face and Sorel, which offer a large assortment of winter-weather product, and department stores such as Kohl’s, Macy’s, Nordstrom and others that relied heavily on their seasonal product have been feeling the pressure.

Walmart had already hinted at financial issues last year when it blamed an increase in its employees’ minimum wage for its declining sales and profits.

The mega-chain’s shares plunged to a 52-week low in mid-October — a stark contrast from its high of $90.97 in late January — after Walmart EVP and CFO Charles Holley forecast that the company’s operating income would be affected by approximately $1.5 billion from the second phase of its investments in employee wages and training.

As retail profits continue their downward trend, analysts have pointed to company-specific challenges that are also at play. For example, some of Finish Line’s challenges during a red-hot period for athletic footwear have been blamed on the retailer’s supply-chain management.

But a look at the bigger picture suggests that changing consumer tastes and a shift from brick-and-mortar shopping to online are a huge part of the puzzle that undoubtedly affects most — if not all — of retail.

In its latest announcement, Walmart suggested that it will refocus its brick-and-mortar stores and put more focus on its online business. Macy’s has made similar statements — it plans to close up to 40 locations, primarily in an effort to reallocate more resources to e-commerce.

And let’s not forget the role of macroeconomic and geopolitical factors.

Feeling the heat of China’s economic woes, the U.S. stock market has had a rough start in 2016, posting its worst open in nearly a decade on Jan. 4.

U.S. stocks have been trading sharply lower again today, with the Dow Jones industrial average down more than 400 points in early morning trading on news of another oil-price plunge. (Oil is now under $30 a barrel.)

And retail stocks have moved in tandem with the markets. The shares of Nordstrom, J.C. Penney Co. Inc., Kohl’s Corp., Walmart, Target Corp. and Macy’s were all in the red at press time.

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