Retail Chains Shed Stores, but It Isn’t Good for Business

From The Wall Street Journal:

Retailers’ preferred solution for empty stores may only be adding to their problems, according to new research and industry executives.

Retail chains have announced thousands of closures this year after closing a record number of stores last year, as the pandemic crimps demand for nonessential items and shopping continues to migrate online.

The hope is that by cutting expenses associated with physical locations, the chains can become more profitable and start growing sales again as customer purchases shift to their remaining locations and websites. But that rarely happens, according to new research and interviews with industry executives.

“Closing stores isn’t going to solve a retailer’s underlying problems,” said Stephen Sadove, the former chief executive of Saks Inc. “You have to look at why the stores aren’t performing. What is their competitive advantage and their reason for being?”

Even before the pandemic, retailers were closing stores at a record pace. U.S. chains announced the closure of 9,275 outlets last year, the most since Coresight Research Inc. began tracking the figures in 2012. The tally exceeds 8,000 stores so far this year, according to Coresight.

The health of the industry will be on display this week as chains from Walmart Inc. to Macy’s Inc. report quarterly earnings, with the holiday shopping season already under way. Chains began offering Black-Friday-type discounts in October, instead of waiting until the traditional day after Thanksgiving.

Retailers that closed stores in recent years often continued to shrink, sometimes to the point of disappearing altogether, according to research from Citigroup Inc. and BMO Capital Markets.

. . . .

“No retailer ever announces one round of store cuts—it’s always the precursor to a store bleed,” said Simeon Siegel, a BMO senior analyst. “Most companies we looked at had lower revenue and profit than before they started closing stores.”

. . . .

The rise of e-commerce put an end to the store-opening juggernaut. As consumers bought more online, they visited physical stores less, making them less productive and more costly to operate. That led chains to close hundreds of locations with the hopes of stabilizing profits. For some, the strategy hastened their decline.

“When you look at all the retailers that are closing stores now, it’s easy to forget that so many have tried this in the past and they aren’t around anymore,” Citigroup analyst Paul Lejuez said.

Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)

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