Retailers are working to reset in the face of online shopping’s growing dominance and shifting spending habits, but thousands more stores may need to close before financial balance returns.

Store closures are already widespread, with about 1,500 locations from Sears to Ralph Lauren set to close this year, but Wells Fargo says more than 2,650 additional storefronts operated by its retailer group should close, given the trouble in scaling e-commerce and the high-cost of physical stores.

“While the real estate shift we see coming may take time, we see [more closures] as increasingly likely given customers’ accelerating transition to the digital channel,” said Ike Boruchow, a senior analyst with the bank.

In order to properly rationalize store fleets to reflect growing online sales in their own business, as well as with Amazon, which Boruchow said accounts for about 30 percent of retail growth, stores including Gap Inc., VF Corp.’s Victoria’s Secret, Lululemon, Coach and Michael Kors each need to close dozens, and some even hundreds of stores.

Gap for instance, despite closing more than 600 locations since 2008, needs to shutter an additional 305 stores, equal to 13 percent of its base, in order to “appropriately size” its footprint, according to Wells Fargo.

Lululemon and Victoria’s Secret, meanwhile, need to close 19 and 76 locations, respectively, the bank said, in order for the brands to reach what it deems “target penetration” of 22 percent for e-commerce sales.

Boruchow did note that Lululemon is “still a young company…that could organically grow their online penetration to the target without needing to close stores.”

As for Coach, which recently decided to spend $2.4 billion to acquire Kate Spade, and Michael Kors, Wells Fargo said each brand needs to shut down 47 storefronts in order to find balance between digital, store and wholesale sales.

But not every major retailer is getting it wrong. Boruchow pointed to Urban Outfitters and newly public J. Jill as companies with an “appropriately sized” store base, along with e-commerce penetration at around 38 percent — well ahead of other stores.

Moreover, the bank said Urban leadership has no plans to open more stores in the U.S., while J. Jill has for years been building its omnichannel model.

“With a low store base and well-developed omni-capabilities, [J. Jill is] already far ahead of competitors who need to reposition themselves to weather strengthening brick-and-mortar headwinds,” Boruchow said.

While Urban and J. Jill may have found the right balance overall, Boruchow said “it is quite clear that the U.S. has more retail capacity than it needs” stemming from decades of retail boomtime prior to 2008 and “specialty retailers are paying the price.”

For More, See:

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