The American Retail Apocalypse: Who’s Gone Bust or Closing Stores?

Figures correct to end-December 2019. These data, based on CRR’s own research, show some of the major changes occurring in the U.S. retail sector. These relate only to retail (1). Announced closures as far as possible are applied to the year in which these occurred. Summary 1 gives the annual totals of major retail business that have become insolvent (Chapter 11 or 7) in 2017 to 2019. Summary 2 gives the numbers of stores (and employees) that U.S. retailers have closed or are closing by year from 2017 to 2019.

(1) ‘Retail’ = sales of finished merchandise to the final consumer, excluding food services, restaurants, automobiles and fuel)

Summary 1: Who’s Gone Bust in American Retail?

These figures show the scale of retail bankruptcies in each year, seen in the number of stores operated by the affected corporations and their employees. Not all these stores disappeared. The brands were frequently purchased by other companies who typically either integrated them with their own property estate or run them as separate, but smaller, retail chains

Table 1

U.S Retailers in Chapter 11 or 7, by Year

Year Number of Stores Number of Employees
2017                     6,306                           89,087
2018                       8,792                         116,103
2019                       6,629                         163,547
totals                     21,727                         368,737
 


Summary 2: How Many Stores are Closing?

Summary 2 shows actual and announced store closures by major retailers by the year in which they occurred. Further details of the businesses involved can be found in Figure 1, below.

Store Closures and Employee Redundancies by U.S. Retailers

(Resulting from Bankruptcy  or Rationalization)

Year Number of Stores              Number of Employees             
2017                   7,474                       89,087
2018                   7,191                     116,103
2019                  9, 994                     189,878
Totals                        24,659                     395,068

  [source: Centre for Retail Research]

FIGURES CORRECT TO END-DECEMBER 2019

Our own totals will not necessarily be those of other research organizations, because of calendar differences about when closures actually occurred as well as differences of definition. We research retail only and exclude food services, catering and restaurants, fuel and automobiles.  But we do estimate employee numbers as a further way of measuring changes in the American retail environment.

The Retail Apocalypse

It is a couple of years since the scale of the problems suffered by American bricks-and-mortar retailers was described as an ‘apocalypse’, meaning the destruction of value as a result of corporate bankruptcies, large-scale store closures and defunct shopping malls.

Apocalypse (ἀποκάλυψις) literally means the revelation of unknown things, mainly relating to the end of days. In fact the changes happening to retailing have been obvious for a very long time, so they cannot really be described as ‘unknown’.  Ignored, perhaps, might be better. However, nobody guessed that so many different retailers would all be badly hit at the same time.

Is it Really an Apocalypse?

It is quite normal for retailers regularly to close stores that are unprofitable, too small, poorly located or which no longer accord with the corporation’s mission. However, American store-based retailing has been affected by the rapid growth of online retailing, the fact there are too many stores and too many loss-making stores. Many retailers have failed to ensure their stores remain interesting, engaging and hit the price points of bargain-hungry consumers. American retailing is going through rapid change.

The dominant retail strategies of the past 50 years have involved filling America with similar stores to provide economies of scale and a degree of control over the market. Cowan and Company (2017) showed that developers built so many retail malls that by 2015 there was 23.5 square foot of shopping space per head in the U.S., compared to 4.6 in the UK, 3.8 in France and 2.4 in Germany (Thompson, 2017). Many of these chain stores have now ‘matured’. There are too many me-too stores that look rather average, often sited in undistinguished retail malls, hit by declining sales because much of the growth in retail sales is sucked up by ecommerce corporations.

Even though by the end of  2019, 9,994 stores had closed, more successful retailers were also opening stores in America. These include Dollar General (975 new stores), Dollar Tree 350 and Aldi 130. Coresight expects a total of 3,118 new stores to open in 2019. However rapid online growth will continue for at least another eight to ten years, thus eventually between one-in-ten and one-in five stores will no longer be needed. This does not mean that all, or most, bricks-and-mortar retail will vanish of course, but it will have a smaller footprint. Moreover, the growth in ecommerce won’t simply mean a lot more delivery trucks: they will require bricks-and-mortar physical stores in each town and city for shoppers who want to collect their online orders rather than waiting at home.

So the sudden decline in many retail business is unwelcome and surprising, but it does not signal the end of retailing as we know it but just the start of a new era of digital retailing.

Why Have So Many Retailers Failed?

Many retailers are in difficulties. S&P Global estimate that 17% of U.S. retailers have credit ratings at the distressed level (Unglesbee, 2019). There is heavy price competition, the rapid growth of online retailing has taken the ecommerce share to more than 14% (of retail, tightly defined), and many retailers are suffering from over-expansion in the 2000s and 2010s. Many retailers have continued to run stores that have made losses year after year, without intervening effectively to staunch the annual loss of value. Private equity has often mean that retailers have also changed hands regularly, which has prevented consistent long-term planning and regular store modernisation, as well as leaving them with massive debt that is almost impossible to pay off. Retailers are no longer a sector where the money keeps on rolling in: short-sellers seek other retailers likely to be in difficulty, banks stop lending, they call in loans, credit insurers charge more or withdraw cover to suppliers, and stock prices fall.  

The mid-market, preppy or logo-aspirational corporations – especially departmental and apparel stores - have lost their kudos and market shares. Consumers also now spend relatively less of their income on apparel and many other basics: they spend more on eating out, travel and ‘experiences’. 

Who’s Gone Bust in 2018 and 2019?

Chapter 11 of U.S. Bankruptcy Law enables businesses to file a petition of insolvency to give them protection from their creditors, while they draw up a plan to reorganise their company. In the U.S. the process is more closely supervised by a judge than the UK.  Table 1 shows some of the more important retailers that have opted for Chapter 11 in the U.S. in 2018 and 2019, Many have suffered trading problems for years and some have been through Chapter 11 at least once before. In 2019, the biggest corporations include: Payless Shoe Source, which is closing down its 2,100 outlets, Gymboree, Southeastern Grocers (Winn-Dixie), Charlotte Russe, Sears and Shopko.

2018

2018

 

Employees

Stores

Mattress Firm

mattresses

14,400

3,600

Claire's Stores

teen jewelry

8,436

2,220

Sears

department stores

30,800

700

Southeastern Grocers

grocery

22,704

528

National Stores

discounter

9,800

344

David’s Bridal

bridalwear

2,880

320

Bon-Ton

department stores

15,360

256

The Walking Company

footwear

1,664

208

Tops Friendly Markets

supermarket

5,850

150

Samuels Jewelry

jewelry

625

112

Golfsmith

golfing products

872

109

A’Gaci

apparel

858

78

Nine West,

footwear

780

71

Rockport Group

footwear

660

60

Kiko USA

beauty products

348

29

Charlotte Olympia

footwear

21

4

J.Mendel

apparel

45

3

Totals

 

116,103

8,792

2019

2019

 

 Employees

Stores

Payless Shoe Source

discount footwear

18,900

2,100

Gymboree

Children/babywear

8,800

800

Southeastern Grocers

grocery

33,792

528

Fred's Pharmacy pharmacist 5,720 520

Charlotte Russe

teenage apparel

8,700

512

Sears, later Sears Holdgs

department stores

63,250

275

Things Remembered

personalised gifts

1,640

205

Shopko

grocery

4,476

373

Charming Charlie

apparel

3,342

261

Forever 21, Inc apparel 1,780 178

Innovative Mattress Solutions

mattresses

1,136

142

Samuels Jewelers

jewelry

1,008

112

Beauty Brands

beauty products

638

58

A’Gaci

apparel

594

54

Z Gallerie

home furnishings

2,122

76

Diesel USA

jeans

320

28

Barney's New York

department store

708

21

Roberto Cavalli

fashion

121

11

Full Beauty Brands

plus-size apparel

6,500

ecomm

Totals

 

163,547

6,629

By the end of 2019, corporations that applied for Chapter 11 or 7 had closed 6,629 stores and eliminated  163,547 jobs. Fewer stores were closed than in 2018, (6,629 compared to 8,792, but job losses were much higher (163,547 compared to 116,103 in 2018). Hence the stores in the 2019 cohort were on average much larger than those affected by Chapter 11 or 7 in 2018.

 

Store Closures in American Retailing

The total number of store closures in 2019 (12 months) by retail corporations by rationalization or Chaper 11/7 was 9,994. This was 39% more than the total for 2018 - 7,191. Coresight Research may well be correct in forecast U.S. total store closures in 2019 as in excess of 12,000, which would probably be true if we included corporate announced closures for 2020-2021 along with the 2019 figures.

Over the three years 2017-2019 we calculate that a total of 24,659 stores have been closed or are expected to close. This has resulted in 395,166 employees in stores, head offices, warehouses and distribution losing their jobs. Last year alone, 189,879 jobs were lost in 2019,

The employee figures are estimates and are included to give some idea of the relative cumulative impact of the store closures. After all, the closure of a major department store and a small footwear store are both recorded as one store, but the impact of each closure is different.

Which Sectors Have Been Most Affected by the Crisis?

Figure 1 shows the main corporations that have closed stores or made further announcements in 2019. The results are greatly skewed. The top four corporations are responsible for 4,062 store closures, or 40.6% of the 2019 closures. These are led of course by the Payless closures of 2,100 stores involving 18,900 employees. This suggests that the results are sharply skewed towards the effect of a few large closure programmes.

The businesses that have closed most stores in 2019 are as follows:

 

As a percentage of total closures

Apparel

24.6%

Footwear

19.5%

Drugstore, pharmacy, health supplements

12.0%

Consumer electronics, smartphones

8.7%

Toys, games and hobbies

6.1%

Maternity & childrenswear

5.7%
Subtotal 76.6%

Apparel (24.6%) and footwear (19.5%) comprised almost 45% (44.1%) of total store closures and if maternity & childrenswear (5.7%) is included then 49.8% of all store closures were in this vertical market. However most of these are, on average, smaller stores and account for only 23.2% of employees whose jobs were at risk. At the other end of the scale, the department stores category was responsible for only 4.4% of all store closures, but 28.3% of all employees at risk.

The Changing Face of American Retailing

It is normal to be concerned when a well-known business crashes into bankruptcy or a visit to the mall shows extensive vacancies. Retail has changed and is changing, although it is a truism to state that the bankruptcies and vacancies occur because not enough people are shopping with these businesses any more. It will take some years before most retailers feel that they have the right number of shops in the right places and the correct balance of online and offline retail sales. But while we may regret store closures and bankruptcies and the disruption they cause, American retailing will continue to grow and modernise to serve existing and new retail needs.

References

Unglesbee, B. (2019) ‘S&P: 17% of retailers are distressed’, Retail Dive, 15 May

https://www.retaildive.com/news/sp-17-of-retailers-are-distressed/554846/

Thompson, D. (2017) ‘What in the World Is Causing the Retail Meltdown of 2017?’, The Atlantic, 10 April,

https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/

Figure 1

 


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