Retail has gone back into retreat.
While hopes were high heading into the holidays, Santa didn’t deliver for many retailers, who are now starting a new round of store closures as they seek to rightsize — whatever that means to merchants today. And even some retailers who did get what they wanted for Christmas are also rethinking their physical footprint.
On Wednesday, Abercrombie & Fitch Co. turned in a mostly positive fourth-quarter earnings report, saying it would close up to 40 stores this year, while also opening that many or more new locations. But most retailers trimming their portfolio are not adding as many stores back in.
Chico’s FAS Inc., which continues to struggle, updated investors on its plans to close 100 Chico’s, 90 White House Black Market and 60 Soma stores over the next three years. Cutting even more is Dollar Tree Inc. The discount retailer disclosed that it would shutter up to 390 underperforming Family Dollar doors this year.
“It’s very likely we’re going to see record store closures in 2019 and record bankruptcies,” said Jan Kniffen, chief executive officer of retail consulting firm J. Rogers Kniffen Worldwide.
“We’re closing a lot more now because so much of the business is moving to the online space and it’s a lot more competitive and a lot of these retailers are carrying a lot of debt,” he added.
The spate of store closures follows last week’s brick-and-mortar bloodbath, when in the space of just 24 hours, more than 300 planned stores closures were revealed, including 230 Gap stores, 53 Victoria’s Secret doors and 28 J.C. Penney locations. And E.l.f. Beauty also admitted it was heading to the chopping block, closing all of its 22 stores, while Foot Locker said it would shutter 165 doors.
At the same time, store-closing doubts are growing in some quarters as many retailers seem to have shuttered stores in order to marshal resources only to later have to cut even more.
Simeon Siegel, a retail analyst at Nomura, said that while the savings from closed stores look great on paper, the reality needs to be proven — both at Gap and other retailers.
In the case of Gap Inc., it is estimating $90 million annualized pretax savings from the closures of its namesake.
“It is hard to ignore that the last decade has seen a string of déjà vu’ing hoped-for savings from store closures that simply fail to lift EBIT dollars,” he wrote in a research note.
Déjà vu, indeed — the industry just went through a round of aggressive store closures in 2017.
And retailers’ fortunes appeared to have largely turned around in 2018, with consumer confidence at its highest level in close to two decades thanks to a strong labor market and tax cuts making shoppers feel better off.
But a lot can change in a few months and 2019 has certainly not gotten off to a strong start, with recently released earnings revealing that a record Black Friday and Cyber Monday did not translate into the stellar holiday period some retailers had been banking on.
Art Peck, president and chief executive officer of Gap, told investors the quarter “did not live up to” what he knows the brands can deliver: “We did not finish the year as strongly as expected. As others have pointed out in the industry, the macro environment played a role.” (Gap is taking even more drastic measures to reinvent by splitting itself in two, setting Old Navy free as it’s own public company and leaving the rest of the business behind).
This softening backdrop left some weaker chains with little choice but to shut some of their doors in a bid to boost profits — a trend that has shifted into overdrive recently.
Even before last week, retailers started off the year proactively trimming back.
L Brands closed all 23 Henri Bendel stores, including the Fifth Avenue flagship, 94 Charlotte Russe stores will disappear as part of its bankruptcy proceedings and Hudson’s Bay Co. plans to shut 20 Saks Off 5th stores over an unspecified period. And Payless ShoeSource is closing 2,100 stores across the U.S., while troubled Sears, which recently got saved from bankruptcy, is also continuing to shrink its physical footprint.
Before last week’s casualties, U.S. retailers had already announced 4,309 store closures this year and just 1,586 store openings, according to Coresight Research. For comparison, during the whole of 2018, major retailers closed 5,524 stores in the U.S. and opened 3,083 stores.
Not everyone was hit so hard by the tail off in consumer spending and the ongoing battle between Amazon and traditional retailers.
Walmart Inc., Target Corp. and others have plowed millions of dollars into improving their digital offering and in-store experience and are reaping dividends.
Indeed, Walmart just reported its best quarterly results in recent years, including U.S. comparable-store sales growth of 4.2 percent, excluding fuel, on top of a 2.6 percent gain a year earlier. Target’s comparable sales for the fourth quarter were up 5.3 percent thanks to stronger traffic, beating analysts’ expectations of 5 percent.
In contrast, others have been slower to react, but are trying to do so now — hence, the store closures. Gap, for example, is planning to bring in 40 percent of sales from the web following the closure of its stores.
According to Barbara Byrne Denham, senior economist at real estate research and analysis firm Reis, the apparel sector appears to have reached a tipping point and some retailers have been caught flat-footed.
“If they didn’t have a good channel for e-commerce then they were absolutely left behind, so that is an unfortunate development. They could just not keep their brands fresh or new,” she said.
She said that some of these struggling retailers closing stores still have time to turn their fortunes around.
Even with some famous names disappearing and some empty storefronts appearing, Marie Driscoll, managing director of luxury and fashion at Coresight, thinks this is a year of reinvention.
“Stores are not going away, but the stores that stay are going to be different,” she said. “They’re going to be a place to experience the brand, be filled with technology, so it’s seamless offline to online, a grand experience versus a transaction. For apparel brands, they are not just places where you buy and sell anymore.”
That makes figuring out just what “experience” at retail means — to use the latest buzzword — all the more important.