Retailers are bracing for a
fresh wave of store closures at the start of the new year.
The industry is heading into
2017 with a glut of store space as shopping continues to shift online and
foot traffic to malls declines, according to analysts.
"If you are weaker
player, it's going to be a very tough 2017 for you, " said RJ Hottovy, a
consumer equity strategist for Morningstar.
He said he's expecting a
number of retailers to file for bankruptcy next year, in addition to mass store
closures.
Nearly every major department
store, including Macy's, Kohl's, Walmart, and Sears, have
collectively closed hundreds of stores over the last couple
years to try and stem losses from unprofitable stores and the rise of
ecommerce.
But the closures are far from
over.
Macy's has already said that
it's planning to close 100
stores, or about 15% of its fleet, in 2017. Sears is shuttering at
least 30 Sears and Kmart stores by April, and additional closures are
expected to be announced soon. CVS also said this month that it's
planning to shut down 70 locations.
Mall stores like Aeropostale,
which filed for bankruptcy in May, American Eagle, Chicos, Finish Line, Men's
Wearhouse, and The Children's Place are also in the midst of multi-year plans
to close stores.
Many more announcements like
these are expected in the coming months.
The start of the year
is a popular time to announce store closures. Nearly half
of annual store closings announced since 2010 have occurred in the first
quarter, CNBC
reports.
In addition to closing stores,
retailers are also looking to shrink their existing locations.
"As leases come up,
you're going to see a gradual rotation into smaller-footprint stores,"
Hottovy said.
Despite recent
closures, the US is still oversaturated with stores.
The US has 23.5 square feet of
retail space per person, compared with 16.4 square feet in Canada and 11.1
square feet in Australia — the next two countries with the highest retail space
per capita, according to a Morningstar report from October.
"Across retail overall
the US has too much space and too many shops," said Neil Saunders, CEO of
the retail consulting firm Conlumino. "As shopping patterns have changed,
some of those shops are also in the wrong place and are of the wrong size or
configuration."
As stores continue to close,
many shopping malls will be forced to shut down as well.
When an anchor store like
Sears or Macy's closes, it often triggers a "downward spiral in
performance" for shopping malls, Morningstar analysts wrote in
the report from October.
The malls don't only lose the
income and shopper traffic from that store's business. The closure often
triggers "co-tenancy clauses" that allow the remaining mall
tenants to exercise their right to terminate their leases or renegotiate
the terms, typically with a period of lower rents, until another retailer moves
into the vacant anchor space.
To reduce losses, malls must
quickly find a replacement tenant for the massive retail space that the anchor
store occupied , which is nearly impossible — especially in malls
that are already financially strapped — when every major department store is
reducing its retail footprint.
That can have
"grave" consequences for shopping malls, especially in markets
where it's harder to transform vacant mall space into non-retail space like
apartments, according to the analysts.
The Morningstar report
supports another recent analysis from Credit Suisse that
said about 200 shopping malls are at risk of shutting down if Sears
continues to close stores.
