Weekend Economists Examine (E)sc(h)atology January 24-26, 2014

[Demeter]

20. Tsunami of Retail Store Closings and Downsizings Coming; Expect Layoffs and Shorter Hours

http://globaleconomicanalysis.blogspot.com/2014/01/tsunami-of-retail-store-closings-and.html



Due to competition from online retailers like Amazon and dismal holiday sales at Target, J.C. Penny, Sears, Best Buy, and other major retailers, a flood of retail store closings are on the way. Moreover, that same competition also dictates a decided shift away from large stores in large malls, to smaller facilities. All things considered, expect nothing less than a massive Tsunami of Retail Store Closings and Downsizings.

On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April. It's the latest of about 300 store closures in the U.S. that Sears has made since 2010.

Earlier this month J.C. Penney and Macy's announced multiple store closings. J.C. Penney will close 33 stores.

Target said that it will eliminate 475 jobs worldwide, including some at its Minnesota headquarters, and not fill 700 empty positions.

American Eagle will move some of its aerie lingerie locations into its main stores.

Aéropostale will close 175 stores over the next few years.

Wal-Mart has about 100 stores in the U.S. producing same-store sales declines deeper than 3 percent.

Experts said these headlines are only the tip of the iceberg for the industry, which is set to undergo a multiyear period of shuttering stores and trimming square footage. Shoppers will likely see an average decrease in overall retail square footage of between one-third and one-half within the next five to 10 years, as a shift to e-commerce brings with it fewer mall visits and a lesser need to keep inventory stocked in-store, said Michael Burden, a principal with Excess Space Retail Services.

January is typically a busy month for retailers to announce store closings. According to the International Council of Shopping Centers, 44 percent of annual store closings announced since 2010 have occurred in the first quarter. But this year's closings are likely indicative of a new trend, sparked by more and more shoppers turning to the Web, experts said.

Paired with a compressed holiday shopping calendar and a spate of freezing weather across much of the U.S., online shopping contributed to a nearly 15 percent decline in foot traffic this past holiday season, according to ShopperTrak.

"Stores are making a long-term bet on technology," said Belus Capital Advisors analyst Brian Sozzi. "It simply doesn't make strategic sense to enter a new 15-year lease as consumers are likely to continue curtailing physical visits to the mall."

Sozzi said that after a profitable but below-expectations holiday season, the retail industry will face its second "tsunami of store closures across the U.S.," only a few years after what he called the "fire sale holiday season of 2008."

Steering Clear of Traditional Malls

One big shift in store closings has come from retailers shying away from indoor malls, instead favoring outlet centers, outdoor malls or stand-alone stores. Although new retail construction completions are at an all-time low, according to CB Richard Ellis, the supply of new outlet centers has picked up in recent quarters.

"There's no question that mall stores are closing quicker than open air, as far as the department stores," Birnbrey said.

Rick Caruso, founder and CEO of Caruso Affiliated, said at the recent National Retail Federation convention that without a major reinvention, traditional malls will soon go extinct, adding that he is unaware of an indoor mall being built since 2006.

"Any time you stop building a product, that's usually the best indication that the customer doesn't want it anymore," he said.

Expect Layoffs and Decreased Hours

Fewer, smaller stores requires layoffs or shorter hours. Given that job growth over the past year or more has been largely influenced by Obamacare artifacts, and that wave has played out, expect economists (but not Mish readers) to be shocked by what happens next to future headline job numbers.