The Retail Apocalypse

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The Business Insider

The retail apocalypse has officially descended on America

Hayley Peterson

Mar. 21, 2017, 5:25 PM 764,881
Woodbridge Mall New Jersey 7333
Woodbridge Center in New Jersey.Business Insider/Sarah Jacobs

Thousands of mall-based stores are shutting down in what's fast becoming one of the biggest waves of retail closures in decades.

More than 3,500 stores are expected to close in the next couple of months.

Department stores like JCPenney, Macy's, Sears, and Kmart are among the companies shutting down stores, along with middle-of-the-mall chains like Crocs, BCBG, Abercrombie & Fitch, and Guess.

Some retailers are exiting the brick-and-mortar business altogether and trying to shift to an all-online model.

For example, Bebe is closing all its stores — about 170 — to focus on increasing its online sales, according to a Bloomberg report. The Limited also recently shut down all 250 of its stores, but it still sells merchandise online.

Others, such as Sears and JCPenney, are aggressively paring down their store counts to unload unprofitable locations and try to staunch losses.

Retailers stores closing 2017
Mike Nudelman

Sears is shutting down about 10% of its Sears and Kmart locations, or 150 stores, and JCPenney is shutting down about 14% of its locations, or 138 stores.

According to many analysts, the retail apocalypse has been a long time coming in the US, where stores per capita far outnumber that of any other country.

The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia, the next two countries with the most retail space per capita, according to a Morningstar Credit Ratings report from October.

Visits to shopping malls have been declining for years with the rise of e-commerce and titanic shifts in how shoppers spend their money. Visits declined by 50% between 2010 and 2013, according to the real-estate research firm Cushman & Wakefield.

Sears
A Sears store in the Woodbridge Center.Business Insider/Sarah Jacobs

And people are now devoting bigger shares of their wallets to restaurants, travel, and technology than ever before, while spending less on apparel and accessories.

As stores close, many shopping malls will be forced to shut down as well.

When an anchor store like Sears or Macy's closes, it often triggers a downward spiral in performance for shopping malls.

Not only do the malls lose the income and shopper traffic from that store's business, but the closure often triggers "co-tenancy clauses" that allow the other mall tenants to terminate their leases or renegotiate the terms, typically with a period of lower rents, until another retailer moves into the anchor space.

shopping mall
Getty Images

To reduce losses, malls must quickly find a replacement tenant for the massive retail space that the anchor store occupied, which is difficult — especially in malls that are already financially strapped — when major department stores are reducing their retail footprints.

That can have grave consequences for shopping malls, especially in markets where it's harder to transform vacant mall space into non-retail space like apartments, according to analysts.

The nation's worst-performing malls — those classified in the industry as C- and D-rated — will be hit the hardest by the store closures.

The real-estate research firm Green Street Advisors estimates that about 30% of all malls fall under those classifications. That means that nearly a third of shopping malls are at risk of dying off as a result of store closures.

I thought about putting this in the Flippy thread, but it's not really related. But it seems that old ways of commerce are fading due to the increase of online shopping.

[Tribble]

There are certainly advantages to going online - fewer employees, less crime, cheaper to operate etc.

However there is still one big benefit for the company, namely public exposure. It's interesting to see that while major big-box retailers are closing shop some companies (like Apple and Microsoft) are actually expanding their physical presence.

[General Zod]

There are certainly advantages to going online - fewer employees, less crime, cheaper to operate etc.

However there is still one big benefit for the company, namely public exposure. It's interesting to see that while major big-box retailers are closing shop some companies (like Apple and Microsoft) are actually expanding their physical presence.

I think customers are a lot more willing to take a risk on a product they aren't familiar with if they have a chance to look at it in person first hand before they put down any kind of money on it. I mean who wants to spend $150 on a nice pair of shoes just to find out they don't fit?

[aerius]

Are you telling me that consumers buying tons of shit they don't need with money they don't have is not a viable long term business model?
Who could've known?

Retailers assumed they'd have exponential growth forever, which of course is impossible. A mass extinction is what happens when their assumptions run into reality.

[Esquire]

Are you telling me that consumers buying tons of shit they don't need with money they don't have is not a viable long term business model?
Who could've known?

Retailers assumed they'd have exponential growth forever, which of course is impossible. A mass extinction is what happens when their assumptions run into reality.

This, basically. The inevitable collapse (preliminary stages thereof, anyway) of a logically unsustainable system should not be this much of a surprise.

[Elheru Aran]

There are certainly advantages to going online - fewer employees, less crime, cheaper to operate etc.

However there is still one big benefit for the company, namely public exposure. It's interesting to see that while major big-box retailers are closing shop some companies (like Apple and Microsoft) are actually expanding their physical presence.

I think customers are a lot more willing to take a risk on a product they aren't familiar with if they have a chance to look at it in person first hand before they put down any kind of money on it. I mean who wants to spend $150 on a nice pair of shoes just to find out they don't fit?

I would expect physical presences for high dollar items to still be a thing. So electronics, appliances, etc. Walk into a showroom, click about on the computer or open the oven door and stick your head in, that kind of thing.

On the other end of that, there's still a place for cheap stuff. Kid's clothes, for example. Nobody really wants to spend more than they have to on stuff that their kids are going to outgrow in a year or two. This is where mega retailers like Walmart come in, though-- all-in-one stores where you can buy everything you need in one trip without having to walk all over the mall to find different stores for your underwear, your shorts, your sunglasses, etc.

[SolarpunkFan]

Are you telling me that consumers buying tons of shit they don't need with money they don't have is not a viable long term business model?
Who could've known?

Retailers assumed they'd have exponential growth forever, which of course is impossible. A mass extinction is what happens when their assumptions run into reality.

Reminds me of that boneheaded "if you're not growing, you're dying" bullshit Reagan said.

Um, I've stopped growing physically for years now. I'm pretty sure I'm not dead. Things can live without growing.

Of course we know why that mindset is paraded around so much: billionaires can never have enough Bentleys (or senators...). Of course now that fairy tale is proving to be wishful thinking.

[Gandalf]

There are certainly advantages to going online - fewer employees, less crime, cheaper to operate etc.

However there is still one big benefit for the company, namely public exposure. It's interesting to see that while major big-box retailers are closing shop some companies (like Apple and Microsoft) are actually expanding their physical presence.

The Apple store isn't just a store though. It's designed as an experience that takes you to Apple-land, in order to sell you not just the product, but the feeling of community with other Apple customers.

K-Mart and the like just don't do that.

[Vendetta]

There are certainly advantages to going online - fewer employees, less crime, cheaper to operate etc.

However there is still one big benefit for the company, namely public exposure. It's interesting to see that while major big-box retailers are closing shop some companies (like Apple and Microsoft) are actually expanding their physical presence.

I think customers are a lot more willing to take a risk on a product they aren't familiar with if they have a chance to look at it in person first hand before they put down any kind of money on it. I mean who wants to spend $150 on a nice pair of shoes just to find out they don't fit?

That's true, but what customers also like to do is go and fondle a product in a retail store and then go home and buy it online where it's usually cheaper. Where I work (I'm in support, but for a retail company) we're putting a lot of effort into making sure that our physical retail and online segments are integrated so that when people go and fondle a product they then buy it from our website, or can do that right there in our store and get the website discount if there is one (and vice versa you can buy a product online and collect it from a retail store).

[Zixinus]

The Apple store isn't just a store though. It's designed as an experience that takes you to Apple-land, in order to sell you not just the product, but the feeling of community with other Apple customers.

K-Mart and the like just don't do that.

Apple stores sell what are essentially luxury products. You need a smartphone in today's world, but not necessarily an iphone. They are meant to appeal to everyone but only people that can afford their products usually go there.

K-Mart and the like focuses on quantity and cheapness, of serving as many people's needs all in one place, that is, everything. You can buy decent phones and accessories there too, maybe even more luxorious/advanced phones.

[Joun_Lord]

K-Mart and the like focuses on quantity and cheapness

I think that focus on cheapness is part of what hurt them and Sears. People want financially cheap products and not so much a physically cheap product or shopping experience. And for K-Mart atleast in my recent experience their products have gotten really terrible, like the worst kind of crap you'd find at a dollar store without the dollar store price. Their stores have gotten run down, staff are non-existent, check-out machines are positively ancient and constantly broken down, and the entire store feels dingy. The has been my experience in multiple stores.

Sears has a similar problem though considering they are owned by the same people this is not surprising. Stores feel shitty, products are crap or atleast don't seem as good as they used to, and alot of the stuff they have is exactly what K-Mart has right down to the same prices (go check their websites) and reward point crap. Sears, atleast as far as I can tell, seemed like it was seen as a more high end store, higher prices but better quality products. Stuff like Craftsman tools was considered some of the best in the business, as good and reliable as the more expensive brands while still remaining affordable. Nowadays ask most anyone who uses tools and they will tell you that alot of the modern Craftsman tools suck, really cheap quality while still having the not so cheap price. Pretty much they say if you want good Craftsman tools go look around at pawn shops or yard sales rather then at Sears.

Of course I doubt Sears/K-Mart turned crap because they are evil business douches pocketing profits from lower quality merch while cackling maniacally about cutting the fat. Well thats probably not the only reason.

Competition really took a bite out of their pie. Wal-Mart with its cut rate prices and starvation wages hit them first. Then came online shopping. Everything big box stores could do online shopping could do better, cheaper, and quite often with less hassle. Big box stores can still stay competitive as Walmart does but Sears/K-Mart seemed to not anticipate the rise of online shopping like Walmart did, did nothing to prepare to compete. Seemed to try to do what they'd always done.

Now a big thing that fucked them over was also management, Sears Chairman splitting it into 30 warring factions added to the severe trouble they were in. Some would argue that the reason for Sears being in a such a sorry position is solely from mismanagement, if they had some competency they might have some pain like any retail store thanks to the economy still not fully recovered, buying habits changing, and increased competition both from online markets and specialty stores (like the aforementioned M$ and crApple stores) but not bleeding billions.

Personally I'm not sad to see my local Sears go. I've not been in there in years, barely go to the mall if I can help it thanks to my SEVERE crowd problems and general bad memories of the fucking place. Online shopping means I rarely have to interact with a human being and I love that.

Though I'm sure for other people who aren't quasi-shut-ins with a crippling fear of people and a penchant for hyperventilating around the horrifying crushing press of groups of them Sears and others stores fucking off bye is a bad thing. Certainly those losing their jobs is a bad thing.