U.S. retailers have announced a staggering number of store closures this year: more than 9,200 as of late November, according to Coresight Research, compared with just over 5,800 for all of 2018.
While this may seem like evidence of dire circumstances for the industry, insiders suggest it may also be a sign that retailers are finally right-sizing their brick-and-mortar fleets for the way consumers shop today and that they are armed with better data with which to do so.
Earlier this year, analysts from the investment bank UBS told clients they expect to see these closures continue as e-commerce takes a larger share of the retail pie, writing in a note, “store rationalization needs to accelerate meaningfully as online penetration continues to rise.” If e-commerce accounts for 25% of retail sales by 2026, about 75,000 more stores will need to close, they wrote — setting the next several years on track to keeping up 2019’s pace.
More optimistically, the analysts said these closures “should help the store productivity of surviving locations.”
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A new report from Placer.ai, a foot traffic analytics platform, supports this conclusion, naming store optimization one of the trends most likely to define retail in 2020. The report highlights a small wave of store closures at Walmart that generated headlines earlier this year.
While some might construe the move as a win for Amazon and other competitors, Placer.ai data suggest that Walmart may ultimately benefit more, given the cost savings and proximity of neighboring stores. Looking at what it calls the “true trade areas” of two of the shuttered stores, it found “tremendous overlap with other nearby locations,” indicating that the stores may have been cannibalizing one another’s foot traffic.
“Shrinking to grow” has been a common theme this year among retailers saddled with too many stores and overly expensive leases. In May, Abercrombie & Fitch announced that it would shutter three of its flagships — bringing the total to five — in an effort to focus on “smaller, more omnichannel spaces” that it hopes will drive improved sales without being a drag on the bottom line.
Even some of the most successful retailers have recently whittled their brick-and-mortar store count: Nike reduced its footprint from 392 stores at the end of fiscal 2018 to 384 a year later, shuttering less profitable locations and investing in innovative concepts such as its tech-driven Nike Live stores, as well as sprawling flagships in major markets like New York and Paris.
There will, of course, be casualties as consumers move more of their shopping online. Sears and Kmart owner Transform Holdco have announced hundreds of store closings this year — so many, in fact, that by February 2020 there will only be 182 left in the country, down from around 2,000 in 2013. So far, the struggling department stores have yet to turn themselves around, seeing year-over-year traffic declines in each month this year, according to the report.