NEW YORK— Retail store closings have been all over the news this year, but at least one think tank feels this could be a good thing for the industry.
Fung Global Retail & Technology suggested that two things occur when chains close stores. First, not all of the sales from the closed stores are foregone by the retailer. “When the retailer closes a store, it does not necessarily lose all of the sales associated with that store. The retailer’s other nearby stores and its transactional website can pick up some sales, especially if the company has established loyalty among its customers,” Fung noted in its “Deep Dive into Store Closures” report.
Secondly, the empty stores provide opportunities for more successful retailers to keep growing, or perhaps be repurposed to provide space for “retailtainment” venues, particularly in underutilized malls.
The pace of change and concomitant store closings in retailing have accelerated this year. In the first half of 2017, Fung estimated that more than 5,300 stores were shuttered, a 218% increase over the same period last year. In addition, 10 major retailers filed for bankruptcy protection, more than all the major retailers who went bankrupt in all of 2016.
While some retailers—Dollar General, Dollar Tree, TJX Cos., Ulta, Ross Stores and At Home among them— have continued to open new stores, there is still a net reduction in the number of national chain stores in operation.
Fung said that 3,262 stores opened over
the first six months of this year, an increase of 53% over the first half of 2016, but that number is still far below the 5,321 stores that closed from January to June 2017.
Store closings have been concentrated in two segments: department stores and specialty stores. Leading the department store entrenchment are J.C. Penney, Sears along with corporate sibling Kmart and Macy’s.
“Based on shopper preference data, we expect Macy’s to retain the highest share of sales when it closes stores and Sears to see the lowest sales-retention rates,” Fung reported.
Fung’s “Deep Dive” report estimates that of the approximately 400 stores closed by Penney, Sears, Kmart and Macy’s, “these closures will result in a total of $2.5 billion in annual sales being freed up for alternative retailers to grab. We further estimate that $1.5 billion, or 60% of that total will be in the apparel category, which includes footwear and accessories.”
Breaking down the $2.5 billion in sales migrating to other retailers, Fung estimated that $1 billion will come from Macy’s, $1 billion from Sears/Kmart and $500 million from Penney.
Where are these sales headed? According to a consumer survey it conducted as part of its report, Fung said, “In theory, Amazon, Walmart and Target are most likely to win sales as a result of store closures by other retailers, given their across-the-board popularity. However, the survey does not split out what people were buying. Moreover, Amazon’s lack of brick-and-mortar stores will probably limit its gains.”
Some other observations from the Fung Global Retail & Technology report:
J.C. Penney shoppers show a substantially higher propensity to shop at Walmart than the average consumer does, suggesting that Walmart could gain the most from Penney store closures.
Macy’s shoppers are more likely than the average consumer to shop at Target, Kohl’s, Best Buy and Penney, which suggests that these four retailers could gain disproportionately from Macy’s store closures.
Sears shoppers overindex meaningfully at Penney. They are broadly in line with the average consumer on a number of other indicators. So, while Penney will lose sales from its own store closures, it could pick up shares as a result of closures by Sears and Macy’s.