Retail apocalypse

The retail apocalypse is the closing of numerous brick-and-mortar retail stores, especially those of large chains worldwide, starting around 2010 and continuing onward.[1][2] In 2019, retailers in the United States announced 9,302 store closings, a 59% jump from 2018, and the highest number since tracking the data began in 2012.[3] Over 12,000 physical stores have closed due to factors including over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits outside holiday binge spending, delayed effects of the Great Recession,[2] and changes in spending habits. American consumers have shifted their purchasing habits due to various factors, including experience-spending versus material goods and homes, casual fashion in relaxed dress codes, as well as the rise of e-commerce,[4] mostly in the form of competition from juggernaut companies such as Amazon.com and Walmart. A further late 2017 Business Insider report by Kate Taylor dubbed this phenomenon the "Amazon effect," and calculated that Amazon.com was generating greater than 50% of the growth of retail sales.[5]

Retail apocalypse
Entrance to former Sears store at Hudson Valley Mall in Ulster, New York, closed in 2018. It had been the mall's last anchor store.
DateJanuary 1, 2010 (2010-01-01) – present
LocationWorldwide
Cause
  • Financial crisis of 2007–08-related downsizing of retail chains caused by rise in global e-commerce operations
  • Accumulation of corporate debt for retail overexpansion
  • Changes in spending habits
  • Impact of COVID-19 pandemic
Outcome
  • Numerous bankruptcies of retail stores began in early 2010s
  • Major decline in revenue from suppliers
  • Bankruptcies began accelerating in March 2020 as a result of the COVID-19 recession

The rash of bankruptcies and store closings is expected to greatly intensify due to the COVID-19 pandemic, with most retail stores, particularly already struggling mall-based retailers, closing for extended periods of time.[6]

The most productive retailers in the US during the retail apocalypse are the discount superstores Walmart and Target, the low-cost "fast-fashion" brands (e.g., Zara, Uniqlo, Cotton On, and H&M), off-price department stores (Ross Stores and DD's Discounts, Marshalls and Burlington) and dollar stores (e.g., Dollar General and Dollar Tree).[7] Pop-up retail, including seasonal retailers such as Spirit Halloween, operating temporarily in vacant spots after companies go out of business which has become more common during the retail apocalypse.

Research from IHL Group finds that when a retailer closes many stores, it says more about the individual retailer rather than the retail industry overall. In 2019, the 20 stores announcing the most closures represent 75% of all closures. IHL found that for each retailer that is closing stores in 2019 more than five retail chains are opening stores, which is up from the 3.7 ratio in 2018. IHL also reported that the number of chains adding stores in 2019 has increased 56%, while the number of closing stores has decreased by 66% in the last year.[8][9]

History

The term "retail apocalypse" began gaining widespread usage in 2017 following multiple announcements from many major retailers of plans to either discontinue or greatly scale back a retail presence, including companies such as H.H. Gregg, Family Christian Stores and The Limited all going out of business entirely.[10] The Atlantic described the phenomenon as "The Great Retail Apocalypse of 2017," reporting nine retail bankruptcies and several apparel companies having their stock hit new lows, including that of Lululemon, Urban Outfitters, and American Eagle.[2] Credit Suisse, a major global financial services company, predicted that 25% of U.S. malls remaining in 2017 could close by 2022.[11]

Since at least 2010, various economic factors have resulted in the closing of many American stores, particularly in the department store industry. For example, Sears Holdings had more than 3,500 stores and 355,000 employees in 2006.[12] By the end of 2016, Sears operated 1,430 stores.[13] In October 2018, Sears filed for bankruptcy and announced they would close an additional 142 of their 687 stores.[14] At the time of filing, Sears had 68,000 employees.[14]

The retail apocalypse has had a domino effect on suppliers; Hasbro, for example, cited the loss of the Toys "R" Us chain as a major cause for lost revenue and layoffs the company imposed in October 2018.[15]

As of May 2020, the rash of bankruptcies and store closings is expected to greatly intensify due to the financial impact of the 2019–20 coronavirus pandemic. J. Crew, Neiman Marcus and JCPenney declared their intention to file bankruptcy during Spring 2020.[16][17]

Factors
... several trends—including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance—have conspired to change the face of American shopping.

The Atlantic[2]

Shift to e-commerce

The main factor cited in the closing of retail stores in the retail apocalypse is the shift in consumer habits towards online shopping.[18] Holiday sales for e-commerce were reported as increasing by 11% for 2016 compared with 2015 by Adobe Digital Insights, with Slice Intelligence reporting an even more generous 20% increase. Comparatively, brick-and-mortar stores saw an overall increase of only 1.6%, with physical department stores experiencing a 4.8% decline.[19]

Over-malled

Another factor is an over-supply of malls,[20] as the growth rate of malls between 1970 and 2015 was over twice the growth rate of the population. In 2004, Malcolm Gladwell wrote that investment in malls was artificially accelerated when the U.S. Congress introduced accelerated depreciation into the tax code in 1954.[21] Despite the construction of new malls, mall visits declined by 50% between 2010–2013 with further declines reported in each successive year.[22]

Experience economy

A major reported factor is the "restaurant renaissance" and shift in consumer spending habits for their disposable income from material purchases such as clothing towards dining out and travel.[2]

Shrinking middle class

Another cited factor is the "death of the American middle class," resulting in large-scale closures of retailers such as Macy's and Sears, which traditionally relied on spending from this market segment.[23] Particularly in rural areas, variety stores such as Dollar General, once thought to be unaffected by the apocalypse since they have continued growing rapidly, are now perceived as being at best a symptom of the phenomenon, and at worst a direct cause of rural, independent retailers collapsing, unable to compete with the lower margins that national chains can sustain.[24][25]

While this notion was promoted by some politicians, the US middle class was larger in absolute numbers during the retail apocalypse than at any other point in American history, and the primary cause of the "death of the middle class" was more people becoming upper-middle or upper class.[26]

Poor management

The final factor in poor brick-and-mortar sales performance is a combination of poor retail management coupled with an overcritical eye towards quarterly dividends: a lack of accurate inventory control creates both underperforming and out-of-stock merchandise, causing a poor shopping experience for customers in order to optimize short-term balance sheets,[27] the latter of which also influences the desire to understaff retail stores in order to keep claimed profits high.[28] Furthermore, many long-standing chain retailers are overloaded with debt, often from leveraged buyouts from private equity firms, which hinders the profitable operation of retail chains.[29][30]

COVID-19 pandemic

The COVID-19 pandemic exacerbated many issues affecting retailers, as many were forced to shut down due to stay-home orders issued in an effort to mitigate the pandemic.[31]

At the same time, online shopping has been booming during the coronavirus-related lockdown. Most of the major e-commerce retailers in the United States were classified as essential businesses and were not required to shut down. Buyers stated that they would deliberately buy products from such categories as food and drinks, hygiene, household cleaning, clothing, health, and consumer electronics online rather than in person due to COVID-19. The outbreak is said to have changed shopping behavior permanently: in the US, 29% of surveyed consumers stated that they had no intention to ever go back to offline shopping. In the UK, this number reached 43%.[32]

On June 9, 2020, Retail research firm Coresight reported that they estimated the number of store closures due to the pandemic and ensuing recession will exceed 2019's record of 9,302.[33][34]

Retailers
Main article: List of retailers affected by the retail apocalypse
Store closures and bankruptcy filings
Company name Time period Number of stores closed Bankruptcy Open stores Source
Borders Books 2011 Closed all stores Liquidated [35]
Sears Holdings 2013-2020 1,380 Kmart and Sears stores Filed October 2018
Acquired out February 2019		 182 locations (2019) [36]
J. C. Penney 2015-2020 200 Filed May 2020 850 stores open in February 2020 [37]
Toys R Us 2018 Remaining 735 stores were closed in 2018. Filed 2017
Emerged 2019		 Two small stores [38]
J. Crew 2018-2020 54 Filed May 2020 [39]
Barneys New York 2019 15 Filed 2019 7 - two flagship stores in New York, two flagship stores in California, one flagship store in Boston and two warehouse outlets [40]
Forever 21 2019 Filed September 2019 [41]
A.C. Moore 2019-2020 145
Payless ShoeSource 2019-2020 All 2,500 stores in US and Puerto Rico closed as of 2019. Filed February 2019
Emerged January 2020 (second bankruptcy)		 Some international stores remain open [42]
Pier 1 2020 Remaining 942 stores Filed February 2020 [43]
Neiman Marcus 2020 Filed May 2020 [44]
Tuesday Morning 2020 230 of the remaining 687 stores Filed May 2020 [45]
GNC (store) 2020 800-1200 stores Filed June 2020 [46]

Strategies

Researchers have identified customer experience and brand reputation as two factors that can influence whether a retailer will survive. Some more established retailers like Toys R Us may not have been as responsive to changing trends in consumer behavior. Some researchers have made recommendations based on trends and technologies to improve the outlook for traditional brick and mortar retailers.[47]

Ikea became one of the first retailers to use Apple's ARKit to develop an augmented reality app that allowed customers to visualize 3D renderings of Ikea products as they would appear in a certain room or place.[48][49] Macy's, American Eagle, Nike and Sephora were reported to be implementing various technologies to integrate digital experiences to improve consumers' physical shopping experiences. Sephora has installed smart mirrors that use augmented reality technology to allow customers to try on makeup.[50]

Kohl's has reduced the size of some stores from 90,000 to between 60,000 and 35,000 square feet. Walmart has automated some aspects of its supply chain.[51] Walmart has started using robots to help with cleaning and stocking shelves. Company executives have said robots lower costs and improve efficiency, but employees report they don't like working with robots. Lowes has been using LowesBot to help customers find items.[47]

According to a study from the International Council of Shopping Centers, new stores can increase traffic to retailer websites by an average of 37% and drive up share of web traffic within that market by 27% in what is called a "halo effect".[52]

See also

References
  1. Peterson, Hayley (January 1, 2018). "A tsunami of store closings is about to hit the US — and it's expected to eclipse the retail carnage of 2017". businessinsider.com. Retrieved January 4, 2018.
  2. Thompson, Derek (April 10, 2017). "What in the World Is Causing the Retail Meltdown of 2017?". The Atlantic. Retrieved April 10, 2017.
  3. Macy's is closing 28 stores and a Bloomingdale's store, Jordan Valinsky, CNN Business, January 8, 2020
  4. Photo slideshow of shuttered retail stores and shopping centers Business Insider
  5. Taylor, Kate (November 1, 2017). "One statistic shows how much Amazon could dominate the future of retail". Business Insider. Retrieved January 15, 2020.
  6. Peterson, Hayley (April 9, 2020). "Coronavirus could trigger a second coming of the retail apocalypse, with a new wave of bankruptcies and store closings expected to sweep the nation". Business Insider. Retrieved May 8, 2020.
  7. The US middle class is disappearing, which makes dollar stores very happy Helen Edwards & Dave Edwards, Qz.com 8 December 2017
  8. "IHL Study: Five retailers opening stores for every retailer closing stores". Chain Store Age. Retrieved December 13, 2019.
  9. Retail Apocalypse Gives More Women a Shot as CEO: A strong bench of female candidates is benefiting from the industry’s woes Bloomberg, Jordyn Holman and Jeff Green, December 13, 2019
  10. Driscoll, Kara (March 27, 2017). "RETAIL APOCALYPSE: 3,500 stores or more to close this year". WHIO TV 7. WHIO-TV. Retrieved April 8, 2017.
  11. Bomey, Nathan (June 12, 2017). "Gymboree files bankruptcy, closing up to 450 stores". USA Today. Retrieved June 12, 2017.
  12. Schoen, Lauren Thomas, Dawn Kopecki, John W. (October 12, 2018). "Timeline: The rise and fall of Sears". www.cnbc.com. Retrieved September 3, 2019.
  13. Thomas, Lauren Hirsch,Lauren (October 15, 2018). "Sears files for bankruptcy, and Eddie Lampert steps down as CEO". CNBC. Retrieved September 3, 2019.
  14. Jones, Charisse; Bomey, Nathan. "Sears files for Chapter 11 bankruptcy protection, to close 142 more stores". USA TODAY. Retrieved September 3, 2019.
  15. "Hasbro points to Toys R Us' demise in announcing layoffs". CBS News. October 22, 2018. Retrieved October 22, 2018.
  16. Sozzi, Brian (April 20, 2020). "A tsunami of bankruptcies are about to wash away America's retail sector". Yahoo! Finance. Retrieved April 20, 2020.
  17. Bomey, Nathan. "Can these 13 retailers survive coronavirus? Permanent store closings, bankruptcies coming". USA TODAY.
  18. Mark James, Retail Apocalypse Online competition drives store closings , July 16, 2018
  19. Kaplan, Marcia (January 12, 2017). "2016 Holiday Ecommerce Wrap-up". PracticalEcommerce. Retrieved April 8, 2017.
  20. Marc Bain, America’s vast swaths of retail space have become a burden in the age of e-commerce qz.com July 19, 2017
  21. Gladwell, Malcolm (March 15, 2004). "The Terrazzo Jungle". The New Yorker. Retrieved November 9, 2017.
  22. Josh Sanburn, Why the Death of Malls Is About More Than Shopping TIME, July 20, 2017
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  24. Business, Nathaniel Meyersohn, CNN. "Dollar stores are facing backlash across America". CNN. Retrieved July 19, 2019.
  25. Misra, Tanvi (December 20, 2018). "The Dollar Store Backlash Has Begun". CityLab. Retrieved May 20, 2019.
  26. Casselman, Ben (December 9, 2015). "Most Americans Aren't Middle Class Anymore". FiveThirtyEight. Retrieved May 16, 2020.
  27. Rosenblum, Paula. "Walmart's Out Of Stock Problem: Only Half The Story?". Forbes. Retrieved December 14, 2017.
  28. "The Walmart Out-of-Stock Problem: Lessons Learned". www.rsrresearch.com. Retrieved December 14, 2017.
  29. "The Real Retail Killer". The New Republic. Retrieved November 27, 2018.
  30. "The retail apocalypse is being fueled by private equity firms adding to debt loads". Business Insider. Retrieved November 27, 2018.
  31. Holliday, Anne. "Gordmans Parent Company Files for Bankruptcy". WESB B107.5-FM/1490-AM | WBRR 100.1 The Hero. Retrieved May 17, 2020.
  32. "COVID-19 shopping behavior: what products would customers rather buy online? [Infographic]". competera.net.
  33. Young, Sarah (June 9, 2020). "Record number of retailers expected to close this year". www.consumeraffairs.com. ConsumerAffairs. Retrieved June 21, 2020.
  34. Research, Coresight (June 9, 2020). "2020 Store Closures in the US: Update—Covid-19 Impact Set To Drive Up Closures". Coresight Research. Retrieved June 21, 2020.
  35. Trachtenberg, Mike Spector And Jeffrey A. (July 19, 2011). "Borders Forced to Liquidate, Close All Stores" – via www.wsj.com.
  36. Tyko, Kelly. "Sears and Kmart store closings continue. Is your location closing in early 2020?". USA TODAY.
  37. Business, Chris Isidore, CNN. "JCPenney is closing six more stores". CNN.
  38. Bhattarai, Abha (July 18, 2019). "Toys R Us is back from the dead, but its new stores are unrecognizable". The Washington Post.
  39. Geske, Dawn (June 4, 2019). "J.Crew Store Closures 2019: Everything You Need To Know". International Business Times.
  40. Tyko, Kelly. "Barneys New York files for bankruptcy and announces 15 closing stores. See the list". USA TODAY.
  41. Business, Clare Duffy, CNN. "Forever 21 Bankruptcy: Retailer enters deal to sell for $81 million". CNN.
  42. Thomas, Lauren (January 16, 2020). "Payless ShoeSource emerges from bankruptcy — again". CNBC.
  43. "The running list of 2020 retail bankruptcies".
  44. "The running list of 2020 retail bankruptcies".
  45. https://www.retaildive.com/news/tuesday-morning-files-for-bankruptcy-with-plans-to-close-a-third-of-its-sto/578660/. Missing or empty |title= (help)
  46. https://www.businessinsider.com/gnc-closing-stores-list-of-addresses-2020-6. Missing or empty |title= (help)
  47. Morgan, Blake. "Slow Your Roll Robots: Not Everyone Is Excited About Walmart's Robots". Forbes.
  48. "IKEA Place, the retailer's first ARKit app, creates lifelike pictures of furniture in your home".
  49. "Ikea acquires AI imaging startup Geomagical Labs to supercharge room visualisations".
  50. Business, Nathaniel Meyersohn, CNN. "Stores are starting to feel a lot more like the internet". CNN.
  51. Fertik, Michael. "How to Avoid Being Victim to the Retail Apocalypse". Forbes.
  52. "The Halo Effect: How Bricks Impact Clicks". reports.icsc.org. Retrieved November 9, 2018.

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