Is It High Noon in the US Retail Industry?

Retail industry store closing announcements mount.

Last week, GameStop became the latest retailer to announce a major round of store closures. Citing a 13.6 percent drop in sales last quarter, the company said it would shutter more than 100 stores, or approximately 2 to 3 percent of its fleet. JCPenney also recently announced the closing of 138 stores, scheduled for spring of this year. Just last week, Sears said it has “substantial doubt” that the company will survive. What’s happening to the US retail industry, and what’s next? It is a scary thought for everyone, especially those who work for retail companies. And the bad news keeps on coming.

There has long been speculation that e-commerce and online shopping will spell the end of the brick-and-mortar retail industry. But that notion is widely regarded as overstated. People are social by nature, and they still want to touch and feel merchandise before making a purchase. So what is really going on?

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One major factor behind retail’s growing troubles is that, in many cases, major retailers that were once trend leaders have lost touch by not adapting to changing tastes. In addition, many of those former trend leaders are the anchor stores of major malls. Think of malls without Sears, JCPenney, Macy’s, Dillard’s, or Kohl’s.

The victims are many. JCPenney had been seen as somewhat of a turnaround success story after surviving the “Ron Johnson” years. But the company has recently decided that it needs fewer retail stores, so the store closings announcement was made. JCPenney CEO Marvin Ellison (who got his start in retail LP) insists that the company is still committed to brick-and-mortar retail.

Sears has been closing Sears and Kmart stores so fast that it’s hard to keep track. Rumors in 2016 hinted that Sears would shutter all Kmart stores. This proved premature. However, in January, Sears did announce the closure of 108 Kmart and 43 Sears locations. With its latest announcement of “survival doubts,” nobody knows for sure what’s next.

Macy’s has also seen disappointing results as of late. Now, with a new chairman, work begins on restoring its once-enviable position as the retail leader among department stores. Macy’s announced the closure of 100 stores beginning in 2016 and added another 68 to the list in January 2017. Interestingly, despite its difficulties, Macy’s has announced two new, full-line stores plus 30 Bluemercury stores and 30 Macy’s Backstage locations within existing Macy’s stores. And there are also plans to expand their Bloomingdale’s brand, perhaps through partnerships.

Not all retail industry woes are exclusive to major mall anchors. Many of the smaller stores are struggling with profitability and even survival. In January of this year, the Limited began closing 100 percent of their retail locations, putting 4,000 people out of work. Limited also shut down its website, although this move was described as “temporary.” Time will tell.

Meanwhile, BCBG Max Azria filed for Chapter 11 bankruptcy. The company operates about 570 stores globally and has indicated that their future retail footprint will be “much smaller,” although no numbers have been indicated beyond an initial 120 store closure announcement. American Apparel, once the poster child of in-store RFID inventory control, said they would shutter all 230 of their retail locations. Then there is hhgregg, which is closing 88 stores after a bankruptcy filing. Wet Seal is closing their remaining 170 stores. Even a once-strong Abercrombie and Fitch recently indicated a 60-store closing.

What is going on in the US retail industry? Numerous reasons have been given. Over-expansion in the 1990s and 2000s has been blamed. The United States has six times more retail space per capita than Europe or Japan. High rents have also been blamed. In addition, nearly everybody blames the rise of e-commerce. But all is not lost. Retailers will continue to adapt, although hopefully they will move more quickly than in the past.

A recent Synchrony Financial report on the retail industry’s future predicted that instant gratification and a higher degree of tech-driven personalization would drive consumer behavior and the industry through 2030. The report said that more than half of consumers polled said they look forward to a blend of in-store and entertainment experiences. The report also noted that American’s infatuation with consumption may be waning. The future success of the retail industry may depend on emphasizing experiences versus “things.”

Yes, the retail industry will have brick-and-mortar stores in the future. But there will be fewer of them. Successful retailers will master the art of creating memorable consumer experiences. The unsuccessful ones won’t.

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