by Gary D. Halbert
April 18, 2017

 

sears Holdings Sears CRE
sears Holdings By DR04 (Own work) [CC BY 3.0], via Wikimedia Commons
Big Retailers Closing Stores At Record Pace In 2017 – Why?

1. Many Large Retailers Are Scaling Back or Going Bankrupt

2. Why? Americans Are Buying More & More Stuff Online

3. Bad News: America Has Way Too Many Shopping Malls

4. Amazon Rules Internet – Others Try to Build Online Sales

5. Use Those Gift Cards ASAP; Give Cash For Gifts Instead

Overview

Big Box retailers and many other popular chain stores – including Sears, JC Penney, Macy’s, Payless, Sports Authority, American Eagle, Radio Shack and many others – are closing their stores at a record pace so far this year.

From rural strip-centers to big city shopping malls, it has been a disastrous last two years for retail. There have been nine major retail bankruptcies so far in 2017 – as many as all of 2016. You may have heard about this already, but I’ll offer a different take on this enormous problem today.

Without giving too much away too early, we have way too many shopping malls in the United States, far more than in any other country on a per-capita basis. We are going to see many malls disappear in the next 5-10 years as their anchor tenants go out of business or close stores.

Why is this happening? It’s a combination of things, of course, but the main reason is that Americans are buying more and more goods and services online than ever before. This trend is still in its infancy and will continue to hurt “brick-and-mortar” retailers for decades to come.

The question is, will the death of retailers cause a new recession? I’ll argue below that it indeed could. But I’m getting ahead of myself. Let’s begin by examining how this problem developed, how it is likely to play out in the next several years and what are the long-term effects on the US economy and our pocketbooks.

Speaking of our pocketbooks, you may want to seriously consider spending any gift cards you may have with major retailers sooner rather than later, given the spike in bankruptcies this year. There is a list of store closings by area in SPECIAL ARTICLES below – take a look.

Many Large Retailers Are Scaling Back or Going Bankrupt

Retailers are closing thousands of stores this year following years of declines in sales and reduced shopper traffic. The rapid decline of so many retailers has left shopping malls with thousands of vacancies to fill, and the pain could be just beginning.

More than 10% of US retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to new data provided by Bloomberg.

Year-to-date, store closings in 2017 are already outpacing those of 2008, when the last US recession was raging, according to Credit Suisse Group. Almost 3,000 closings have been announced so far this year, compared with 1,153 for this period of 2016.

Retail store closures

Extrapolating out to the full year, there could be over 8,600 store closings in 2017, Credit Suisse estimates. That would be well above the 2008 peak of about 6,200.

Making matters worse, a rising number of large chain retailers are filing for bankruptcy. Payless is closing 400 stores this year as part of a bankruptcy plan announced earlier this month. Prior to 2016, the mammoth chain had roughly 4,000 locations and 22,000 employees – much more than it needs to handle the current sluggish demand.

Large chain retailers HHGregg, Gordmans Stores and Gander Mountain all entered bankruptcy this year. RadioShack, meanwhile, filed for Chapter 11 for the second time in two years.

Other companies are plowing ahead with store closures outside of bankruptcy court. Sears, JC Penney, Kmart, The Limited and others are shutting hundreds of locations nationwide, reeling from an especially punishing slump in the department-store industry.

The blight also is taking a toll on jobs. According to Labor Department figures released earlier this month, retailers cut around 30,000 positions in March. That was about the same total as in February and marked the worst two-month showing since 2009 during the Great Recession.

Why? Americans Are Buying More & More Stuff Online

The simplest explanation for the demise of brick-and-mortar shops is that Amazon is devouring retail spending. Between 2010 and last year, Amazon’s sales in North America quintupled from $16 billion to $80 billion. By comparison, Sears’ revenue last year was about $22 billion, so Amazon has more than tripled Sears in just six years. Even more remarkable, according to several reports, half of all US households are now Amazon Prime subscribers.

Yet the full story is bigger than Amazon. Online shopping has done well for a long time in media and entertainment categories, like books and music. But easy return policies have made online shopping cheap, easy and risk-free for consumers in apparel, which is now the largest e-commerce category.

The success of online start-ups like Casper, Bonobos, and Warby Parker (in beds, clothes, and eyeglasses, respectively) has forced physical-store retailers to offer similar deals and convenience online, which is costing them money.

For example, my wife Debi has been shopping online for dresses to wear to our son’s wedding next month. She ordered three dresses from Bloomingdales, but none of them fit to her liking, so she sent them back. Shipping was free in both directions. This is a losing proposition for retailers, but they have to do it to compete.

What’s more, online shopping, once a cumbersome experience of typing private credit-card digits in between pop-up ads, is getting easier thanks to apps and mobile wallets. Since 2010, online commerce has grown from 2% of digital spending to 20% in 2016.

Mobile commerce share of sales

People used to make several trips to a store before buying an expensive item like a sofa. They would go once to browse options, again to narrow down their favorites and a third time to finally pull the trigger on the purchase. On each trip, they were likely to make several other small purchases as they shopped around at nearby stores. But today many consumers can do all their prep online, which means less ambling through shopping centers and fewer making incidental purchases at adjacent stores.

There will always be a place for brick-and-mortar stores. People like surveying glitzy showrooms and running their fingers over soft fabrics. Yet the rise of e-commerce not only moves sales online, but also cultivates new shopping habits – such that consumers increasingly shop on their computers rather than going to their local mall or shopping center.

Bad News: America Has Way Too Many Shopping Malls

There are about 1,200 shopping malls in America today. That’s way too many. The number of malls in the US grew more than twice as fast as the population between 1970 and 2015, according to Cowen Research. The US has five times more malls per-capita than the UK, 10 times more than Germany and 40% more than Canada.

Yet here’s the worst news:

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