Why the Wave of US Store Closings Isn't Over Yet

Sales-per-square-foot data tells sobering story

Author: Andria Cheng

October 2, 2017

Retailers from Sears and Macy’s to bankrupt RadioShack and Payless ShoeSource have announced total closings of more than 6,000 stores this year, but even more cuts seem likely, based on a study of per-square-foot brick-and-mortar sales by retail research and analytics group Fung Global Retail & Technology

In a study that focused on 12 nonfood brick-and-mortar retailers, Fung estimated how many stores would have to be closed in order for the chains to return to 2011 levels of sales per square foot. (The report notes that the calculation is essentially a thought experiment given that it assumes no loss of sales from store closures.)

That said, Fung calculated that the major department stores it looked at—Sears, JC Penney, Kohl’s, Macy’s and Nordstrom—collectively would need to shut more than 600 stores to return to their respective performance in 2011.

Perhaps not surprisingly, mid-priced department stores would need to see the most store closings, according to the study. For Penney, which saw its sales per square foot excluding online contributions plunging 25% in the five years through 2016, the report said it would need to shut the equivalent of 257 stores in order to return to its 2011 sales-per-square-foot level.

For Sears, which saw its sales per square foot slide nearly 29% during that period, the Fung Global prescription was for a closing of nearly 200 stores. 

Meanwhile, for Kohl’s, where per-square-foot sales dropped about 13%, the study said the equivalent of 147 store closings would be needed to return to its store productivity level in 2011.

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Fung is not the first firm to suggest that additional store closings may be on the way.  A Cowen & Co. study earlier this year said as many as 2,000 stores combined may still need to be closed from chains including Macy’s and Penney.

US retailers have announced closings of some 6,018 stores so far this year, nearly triple the number last year, according to a separate Fung Global store openings & closings tracker study. Its data showed that Penney has announced nearly 150 store closings in the past two years.

The store productivity study underscores the fact that not all brick-and-mortar retailers are in the same boat when it comes to fighting increased online competition, declining store traffic and consumers shifting more budget to experience-related spending.

For instance, as home-improvement retailers have ridden the wave of the housing market rebound, the study showed that Home Depot’s sales per square foot jumped 33% the past five years while they increased 20% at smaller rival Lowe’s. That’s not even counting the fact that both retailers each increased their online sales by an estimated 350% over the five-year period, according the study.

The report also bears out the point that off-price retailers TJX and rival Ross Stores have eaten into the share of department stores and apparel retailers and are relatively “un-Amazonable” with their treasure-hunt environment. Ross Stores and TJX’s TJ Maxx and Marshalls both saw sales per square foot rise more than 16% between 2011 and 2016.

Despite growing debate about how well-positioned Costco is to defend against rising online competition led by Amazon, Costco’s store productivity performance showed that, so far, its stores are a demand magnet: sales per square foot at Costco rose almost 13% the past five years.

Photo credit: Flickr