Latest Store-Closing News Likely Won't Be Retail's Last

Stores shuttered as part of strategy to vie against online rivals

Author: Andria Cheng

February 27, 2017

JCPenney on Friday said it plans to shutter as many as 140 stores over the next few months, joining rivals from Macy’s to Sears that have also announced closing plans. And the list of retailers curtailing their store count will likely only continue to grow.

Sales per square foot at public retailers have declined to an average of around $325 in recent years—down from nearly $375 in the early 2000s, according to commercial real estate research firm CoStar, which cited US Census Bureau, Moody’s Analytics and CoStar Portfolio Strategy data.

Some retailers have still experienced increases, such as Whole Foods, which saw its sales per square foot rise 50% to over $900 in 2015. However, department stores and some apparel chains have seen their so-called store productivity drop by double digits, said Suzanne Mulvee, director of research and real estate strategist at CoStar Group.

The stock of retail space in the US will quietly shrink.

“To bring store productivity to a band more in line with historical averages, more than 10% of retail space—or nearly a billion square feet—needs to be ‘rationalized,’” through store closures, conversions to other uses or rent reductions, she said. “Additional closure announcements are likely. The stock of retail space in the US will quietly shrink.”

JCPenney, which on Friday reported net profit for the first time since 2010, said the store closings will help “align” its physical store presence with its “omnichannel network,” to help it redirect capital to invest in locations and initiatives that would help increase sales.

Like other retailers, Penney’s online sales rose in the double digits in Q4 2016. Online sales outpaced comparable store sales performance, which declined slightly.

“Closing stores will also allow us to adjust our business to effectively compete against the growing threat of online retailers,” said Marvin Ellison, the company’s chairman and chief executive.

The stores being closed represent about 13% to 14% of the company’s total store count, less than 5% of its total annual sales, and none of its net income. JCPenney said these stores generate sales far below those of the company’s remaining stores.

The store closings are part of moves by Ellison, a former The Home Depot executive who joined Penney in 2015, to turn around the mid-priced department store chain. Ellison said he plans to open more Sephora stores and beauty salons, both company sales outperformers, as part of his initiatives to differentiate Penney and vie against online rivals.

“Those experiences we create for customers are hard to replicate online and magnify the importance of physical stores,” Ellison said on a call with analysts and investors Friday, adding that Penney also plans to add more appliance showrooms, and is testing home-installed services amid struggles at Sears.

Echoing similar points by his counterparts in recent days, Ellison also highlighted the importance of an omnichannel strategy for brick-and-mortar retailers: Over three-quarters (77%) of its online stores “touch” a physical store, he said, referring to tactics such as buying online and picking up in-store.

Physical retailers will have to act fast to keep themselves relevant. Even though digital and omnichannel have been big retail buzzwords for years, a recent survey showed many global retailers are still struggling to come up with a profitable strategy to meet the demands of omnichannel shoppers.

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