Store Closures, Failures Continue to Mount as Retailers Seek to Pivot Faster

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The seemingly weekly drumbeat of retailers either closing stores or filing for bankruptcy is evidence of the ongoing seismic shift in customer demands and expectations, and the failure of many to pivot fast enough to meet them.

Even with all this bad news, many companies have managed to get the memo and stay ahead of the curve, and roughly 88% of all retail spending is still going through a physical till. But the pain caused by the closures is undeniable on a number of levels.

“For many, shopping is now ‘digital first, stores maybe,’ so it’s much less going to the mall and much more going online,” said Alan Treadgold, Global Retail Lead for PA Consulting, an innovation and transformation consultancy. “At a local level, the impacts are felt very sharply. A lot of those store closures are of retailers that are big anchor tenants in malls and outlet centers. When they leave, the viability of the entire mall can go with them.”

In 2018 alone, major store closings took place at Destination Maternity, Macy’s, JCPenney, The Bon-Ton Stores, among many others.

One of the biggest blows in 2018 came as Toys R Us announced it was closing all of its 800 stores after filing for bankruptcy protection the previous year. But there is a pulse; former executives have started a new company called TRU Kids. Also, Geoffrey, the well-known mascot for Toys R Us made an appearance this past holiday season in the form of Geoffrey’s Toy Box, a collection of brands at pop-up stores in hundreds of Kroger stores.

In early March, Charlotte Russe announced it was liquidating and closing all stores in the next two months. The apparel retailer hadn’t planned to shut down stores, but this changed when liquidator SB360 Capital Partners won the auction in bankruptcy for the company’s $160 million worth of inventory and other assets.

JCPenney announced in early March it was planning to close 18 full-line stores in the second quarter of 2019, the company had already announced in January it would close three stores this spring. The store closures in the March announcement came after the company announced it would leave the home goods, appliances and furniture categories in an effort to meet customer expectations.  Entering into these categories began in 2016.

Gymboree announced it is selling its brands to The Children’s Place and Gap, after announcing in January it was filing for Chapter 11 bankruptcy with plans to close as many as 900 stores under the Gymboree, Janie and Jack and Crazy 8 brands.  At the time, Gymboree was looking to sell the Janie and Jack brand, which has 139 stores.

While still a strong going concern, Abercrombie & Fitch plans to close 40 more stores in the U.S. And Chico’s FAS is shutting down 250 stores over the next three years to reduce costs and improve profitability, executives said on an earnings call.

CNN reported that Victoria’s Secret plans to close 53 stores this year as more women are shifting towards a growing number of lingerie startups, including some with a plus-size focus, as well as bigger retailers.

Payless ShoeSource announced in February it may need to shut down most if not all of its North American stores if it can’t find a buyer. The company filed for bankruptcy protection in 2017, while closing 400 stores in the U.S. and Puerto Rico.

“The closure of mall-based retailers is not a new storyline, so further degradation of the market shouldn’t surprise anyone,” said Curtis Tingle CMO of Valassis, a media and marketing services company. “However, recent research [from Valassis] shows 60% of consumers still prefer to shop for apparel in a mall vs. online primarily because of the convenience and one-stop shopping nature of the experience.”

Tingle said consumers would shop in malls more often if they had better access to savings such as coupons and deals, shorter lines and better service.

“To do this profitably, retailers must understand what is important to their core customer, deliver on those insights and transform their business to meet the changing needs of their audience,” he said.

Tingle said store closures overall are not indicative of what lies ahead across the board, as retailers that are responding to the needs of their customers have a bright future.

“Some may need to reset and change course.  For example, Gap’s recent announcement to spin off Old Navy as a separate company is a good move,” said Tingle. “It’s about putting the consumer first not just leveraging scale to drive competitive advantage.”

Tingle said every retailer has the opportunity to get closer to customers and make their interactions and shopping experiences more relevant. Those that personalize with targeted messaging and promotions and rewards will see stronger results. For instance, Valassis’ 2018 Purse String survey showed 96% of consumers still like shopping in store for apparel, shoes and accessories.

Treadgold said retail icons such as JCPenney, Walmart and Macy’s are under tremendous pressure from not only Amazon but host of startups finding new ways to engage directly with shoppers.

“Technology-enabled shoppers have access to essentially limitless products online and can effortlessly find the lowest prices too,” said Treadgold. “And of course, even more shoppers are showing that they want to shop this way in more categories.”

The ongoing drama of Sears captured headlines and attention for months as former CEO and chairman Eddie Lampert finally won a protracted battle in bankruptcy court with a bid of $5.2 billion to keep the company alive.

“The big retailers, especially ones that are servicing a lot of debt from deals that you probably wouldn’t dream of making now, are in a fight to stay relevant and indeed, to stay in business,” said Treadgold.

In its fourth quarter earnings call, Dollar Tree – which merged with Family Dollar in 2015 – announced plans to close up to 390 Family Dollar locations. It had closed 84 under-performing locations in Q4, 37 more than originally planned. On the plus side, the company plans to open 350 new Dollar Tree stores, 200 newly remodeled Family Dollar stores and re-banner 200 Family Dollar stores to Dollar Tree. It is also launching Family Dollar H2 concept stores with Dollar Tree merchandise.

Treadgold said discount retailers are under a huge amount of competitive pressure, as they don’t have the almost limitless product range of online competitors and customers don’t value them as they did.

“This doesn’t mean that they can’t compete,” said Treadgold. “They have to be very clear about what their competitive advantages are and implement plans to transition to a business model that’s much more relevant to the way their customers now want to shop.”

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