The bankruptcy of fast-fashion retailer Forever 21 was the 35th major bankruptcy this year, more than two-thirds of them in retail. It probably won’t be the last.
Coresight Research says more than 8,500 stores have closed this year, 47% more than last year and ahead of the record 8,000 or so that shut down in 2017. It estimates as many as 12,000 stores will close in 2019, offset by 3,500 openings this year to date.
Brick-and-mortar stores will not vanish, but there’s a real possibility e-commerce may grind down the retail industry for several more years as it falls into a more sustainable equilibrium. It’s a change that could fundamentally alter the retail landscape.
Still open for business
There’s the temptation to minimize the carnage inflicted on retailers by noting that just a handful of companies make up a large percentage of the store closures.
Payless Shoes accounted for 2,300 of the total after it filed for bankruptcy this year, and Gymboree, Charlotte Russe and discount chain Fred’s each contributed hundreds more.
An even smaller number of retailers are in expansion mode. Target opened 100 mini-stores in the past two years and committed to open 30 more each year. Dollar General opened more than 900 stores last year and is more than halfway to achieving its goal of opening 1,000 stores this year.
No end in site
An analyst at B. Riley FBR says that the retail industry remains oversupplied with stores and that the shakeout could continue for 18 to 24 months. According to the industry site Retail Dive, analyst Scott Carpenter suggests as much as 30% of retail space “would cease to exist in its current form, as consumer buying trends shift increasingly online.”
The wreckage is felt at the shopping mall. As customer traffic declines, mall operators consider drastic measures to forestall the inevitable. Simon Property Group is considering bailing out troubled retailers, using some of its $6.8 billion in liquidity to keep its tenants afloat.
Simon successfully invested in Aeropostale after it declared bankruptcy by partnering with General Growth Properties and Authentic Brands Group to keep several hundred stores open. A mass closure could have further discouraged consumers from visiting their malls, which would have had a domino effect for other retailers.
Vacating the premises
Vacancy rates are creeping higher at shopping malls. Simon Property Group says the occupancy rates in its U.S. malls fell to 94.6% in the second quarter from 94.8% a year ago. Similarly, Macerich saw its occupancy rate decrease from 94.3% in last year’s second quarter to 94.1% this time around, while Brookfield Property Partners, which owns General Growth Properties, saw the number of stores in its portfolio that are leased fall to 95% from 95.7% in 2018.
These are seemingly minor movements, but they involve class A mall operators owning some of the best properties. Among class B and C mall operators, the impact could be much more devastating.
Though there are more than a few retailers who seem well positioned to expand, many others are financially distressed and on the verge of bankruptcy. As the “retail apocalypse” stretches out over the next year or two, we’re likely to witness more closures from across the industry.
Date: October 10, 2019
Source: USA Today