A
tsunami of store closings is about to hit the US -- and it's expected
to eclipse the retail carnage of 2017
- More than 12,000 stores are expected to close in 2018 – up from roughly 9,000 in 2017, according to Cushman & Wakefield.
- A rash of bankruptcy filings and announcements to close stores are expected at the start of the year, when retailers are flush with cash from the holiday season.
- Among the companies most likely to file for bankruptcy within the next yearare Sears, Bon-Ton Stores, Bebe Stores, Destination Maternity Corp., and Stein Mart.
- The closings would push hundreds of shopping malls to the brink of death.
2
February, 2018
Retailers
are bracing for a fresh wave of store closings in 2018 that is
expected to eclipse the rash of closings that rocked the industry
last year.
“Landlords
are panicking,” said Larry Perkins, the CEO and founder of the
advisory firm SierraConstellation Partners. “The last year was
pretty apocalyptic from a retail standpoint, and the macro issues
haven’t changed. There will continue to be a high degree of
bankruptcies and store closures.”
2017
was a record year for both store closings and retail bankruptcies.
Dozens of retailers including Macy’s, Sears, and J.C. Penney
shuttered an estimated 9,000 stores – far exceeding recessionary
levels – and 50 chains filed for bankruptcy.
But
there’s still a glut of retail space in the US, and the fallout is
far from over.
The
number of store closings in the US is expected to jump at least 33%
to more than 12,000 in 2018, and another 25 major retailers could
file for bankruptcy, according to estimates by the commercial real
estate firm Cushman & Wakefield.
Nearly
two dozen major chains including Walgreens, Gap, and Gymboree have
already announced plans to close more than 3,600 stores this year.
Many
more announcements on closures and bankruptcies are expected in the
coming months.
The
start of the year is a popular time to announce store closings and
bankruptcies because retailers are typically flush with cash after
the busy holiday season – and closing stores and filing for
bankruptcy are costly.
Among
the companies most
likely to file for bankruptcy within the next year are
Sears, Bon-Ton Stores, Bebe Stores, Destination Maternity Corp., and
Stein Mart, according to S&P Global Market Intelligence.
Mass store closings will force shopping malls out of business
When
combined with last year’s record-high store closings, an even
higher rate of closings in 2018 would push hundreds of low-performing
shopping malls to the brink of death.
The
commercial real estate firm CoStar has estimated that nearly a
quarter of malls in the US, or roughly 310 of the nation’s 1,300
shopping malls, are at high risk of losing an anchor tenant.
Anchor
tenants are retailers like Macy’s and J.C. Penney that occupy the
large, multistory buildings at mall entrances.
Business
Insider/Samantha Lee
The
loss of even one anchor tenant can trigger a multidecade downward
spiral for mall owners.
That’s
because the malls don’t only lose the income and shopper traffic
from that store’s business; such closings often trigger clauses
that allow the remaining mall tenants to exercise their right to
terminate their leases or renegotiate the terms, typically with a
period of lower rents, until another retailer moves into the vacant
anchor space.
That’s
good news for retailers looking to grow their physical assets – it
means they are more likely to score low rent and favourable lease
terms.
But
it’s terrible news for retail landlords, some of whom are now
trying to stop the bleeding by suing the companies that are closing
stores.
Mall owners are suing retailers to keep stores open
Simon
Property Group, one of the biggest mall operators in the US, sued
Starbucks this year after the coffee chain said it planned to close
all 379 stores in its Teavana chain, 77 of which are located in Simon
Property Group malls.
The
mall owner demanded that Starbucks keep running the tea shops located
in its malls, arguing in part that their closing would reduce traffic
to surrounding stores.
A
judge ruled in Simon Property Group’s favour in December and
ordered Starbucks to keep operating the Teavana stores in question.
Whole
Foods was also recently
sued for
closing a Seattle-area store, with the owners of the property
fighting the company for breaking its long-term lease.
A
judge has since ordered Whole Foods to reopen the store, which the
grocer had closed in October.
As
mall operators become increasingly desperate to keep the lights on,
many more retailers could find themselves in court, fighting to shut
down struggling stores.
Not all retailers and shopping malls are doomed
To
be sure, there are still hundreds of high-performing shopping malls
in the US that are expected to remain immune from the fallout of
shrinking retailers.
Only
the lowest-performing malls – of which there are roughly 300 –
are in danger of going out of business.
There
are also plenty of retailers, mostly discounters, that are growing
their physical assets while others shrink.
Dollar
General, Dollar Tree, Lidl, Aldi, Ross Stores, and TJ Maxx are
planning to open hundreds of new stores next year.
“Retail
isn’t going away by any means,” Perkins of SierraConstellation
said. “We just got a little bit out of control with the volume of
retailers and the number of stores.”
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