New data show that more retailers are opening stores than are closing them. This is part of a cycle that retail landlords have been riding for decades.
Roughly five retail chains are opening stores for every single retailer that is closing them this year, according to research from IHL Group. This is up from last year's nearly 4-1 ratio. The firm also reports that the number of chains adding stores in 2019 has increased by 56 percent, while the number of chains closing them has decreased by 66 percent.
IHL reviewed 1,660 retail chains with at least 50 stores in the U.S. across nine industry segments to compile its report, titled Retail Renaissance — True Story of Store Openings/Closings. The firm measured each retailer's total store count at the end of 2016, 2017 and 2018, as well as the plans for year-end 2019, based on company filings and statements. The net total increase or decrease in store count was noted and the data tallied.
“In every single retail segment there are more chains that are expanding their number of stores than closing stores”
IHL reports that fewer retailers make up the bulk of closures this year. Last year 20 chains represented 52 percent of all the store closures. This year the 20 announcing the greatest numbers of store closings represent 75 percent of all closures.
“U.S. retail has increased [by] $565 billion in sales since January of 2017, fed not just by online sales growth but [by] net store-sales growth,” said Lee Holman, IHL's vice president of research, in a press release. “Clearly, there is significant pressure in apparel and department stores; however, in every single retail segment there are more chains that are expanding their number of stores than closing stores.”
Since 2017 apparel and department-store chains have seen the net closure of 9,651 stores. During this same period, all other segments represented 18,226 net new openings, according to the firm. Moreover, 64 percent of retailers are boosting their store counts this year, 12 percent are pulling back, and 24 percent report no change in store count either way. Last year 41 percent boosted store counts, 37 percent decreased them, and 22 percent posted no change either way.
BY THE NUMBERS
For every chain closing stores, 5.2 chains are opening them. Specifically, these ratios, by segment, include the following:
Food, drug, convenience, mass merchant: 9.5 chains opening stores for every chain closing stores
Apparel, hard goods, department store: 3.7 chains opening stores for every chain closing stores
Restaurant: 6.3 chains opening stores for every chain closing stores
The two primary characteristics among those chains closing the most stores are high debt levels and rapid rates of expansion driven by the historically low interest rates of the past 10 years, Holman says. “Lack of innovation and short-sighted private equity has also played a significant role in many of the chains,” he said. “Retailers without these characteristics have continued to thrive in this market." When retailers close high numbers of stores, that can be indicative of individual retailers rather than of the retail industry on the whole, news accounts notwithstanding, he notes.
IHL observes in its report that it is both normal and healthy for chains to be opening stores and shutting the nonperforming stores. It is the net change overall, among other measures, that will reveal the health of a company or the industry, the firm says. Seven of the nine segments posted a net store increase for this year. Apparel and department stores alone among the report's segmented retailers show a net store decline.
Download the full report here.
By Brannon Boswell