Christmas season was a disappointment. GDP growth is slowing. Taxes are going up. What’s the retail industry to do? There’s really only one choice: close more stores.
Through the first nine months of 2012, closings were up 25% over the same period from the prior year (fourth quarter numbers aren’t available just yet). And Howard Davidowitz, chairman of retail banker and consultant Davidowitz & Associates, expects roughly the same pace of closings in 2013.
“The consumer is 70% of GDP. If growth is decelerating, how are you going to have (retail) growth? You’re not, you’re going to go on closing stores,” he says.
For the healthy and unhealthy alike, store closings are part of the landscape. And probably will be at least a little while longer. Start with those retailers that are sliding away altogether. Fashion Bug, the discount women’s apparel chain whose parent, Charming Shoppes, was recently bought by Ascena Retail Group, announced it will shut down all 600 stores. Ascena will concentrate on igniting sales and profits at Charming Shoppe’s other chains, Lane Bryant and Catherines.
Meantime, closings continue at a fast clip for Blockbuster, the movie rental company whose business model has become o
utdated in recent years. Parent Dish Network, which bought Blockbuster out of bankruptcy in 2011, says it will drop another 500 stores, about a third of what remains. Analysts figure that unless Dish Network’s plan to sell mobile phones out of Blockbuster stores pans out, the remaining 1,000 locations may not last much longer either.
And what’s left to say about Sears, the epic retail failure of hedge fund manager Eddie Lampert, which has lost money for years following a merger with Kmart? After spending a fortune buying back stock, only to see its value keep declining, Lampert, who just inserted himself as Sears’ CEO, is now monetizing by selling off some of his best real estate and shuttering stores. Sears Holdings announced 172 closures in 2012. Lambert publicly insists he’s committed to improving operations – the company has slashed inventory and spent money to equip sales people with iPads to help them provide quicker service to customers. But some analysts believe that slicing up the company and selling off assets is inevitable. Davidowitz figures it’s just a matter of time before Sears goes away as an operating company, with its stronger brands like Craftsman and Kenmore getting gobbled up by competitors.
“I would call it an orderly liquidation,” he says.
Even those retailers doing okay are dealing with excess capacity, at least in the U.S. Abercrombie & Fitch, the profitable seller of casual apparel, is slated to close 180 stores through 2015. Most are unprofitable domestic mall-centered locations. The same is largely true of Gap, which is sitting on plenty of cash but announced another 100 store closings this year as part of a long-term U.S. downsizing that will claim approximately 700 stores between 2007 and 2013. Both Gap and Abercrombie are investing more heavily overseas as they pare down domestically.
“Gap is making money and getting its product mix better,” says Davidowitz. “But it will still close about 100 stores a year.” You could say the same for much of the industry.
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