While it’s not a surprise that many retail stores will be closing as a result of the coronavirus crisis, what is surprising is the sheer number.
A new report from Coresight Research predicts that retail closures will rise exponentially in the U.S .to reach a total of between 20,000 and 25,000 (gross—i.e., not accounting for openings), with the 22,500 midpoints of this range being significantly higher than our previous estimate of up to 15,000 closures (gross).
That’s quite an increase from 2019, which was a record year with 9, 821 closures.
The category that will lead these closures are retailers who are selling selected categories of discretionary goods. The reason for the closures of this type of retail is diminished cash flow as a result of mandatory store closures beginning mid-March to prevent the spread of COVID-19.
But these stores began opening in May and some are seeing sales recoveries. The report cites the examples of Abercrombie & Fitch which reported recovering 80% of sales in its reopened U.S. stores. And Gap Inc. has also reported that its stores that have reopened have managed to capture 70% of last year’s sales.
Gradual return to ‘normal’
While sales are recovering it's not going to a quick process. In research dated May 27, Coresight Research found that around half of those whose spending patterns have changed think that it will take at least five to six months before their spending returns to normal.
This gradual recovery might just be too much for retailers that were already struggling prior to the crisis and they will close, the analysis predicts.
Another factor affecting store closure is the shift to e-commerce, which could lead to retailers rationalizing their store fleets “particularly if those retailers discovered they could achieve meaningful sales retention through e-commerce when their stores were temporarily closed.”
Mall-Based closures likely to lead non-mall-based closures
Of the total number of stores expected to close around 55–60% will be mall-based stores. Department stores and apparel chains, which are among the most vulnerable sectors, represent 14 of the top 20 occupants of U.S. mall space. As anchor tenants close other mall tenants are likely to follow suit.
Even before the coronavirus outbreak, many regional malls were being hit by a cycle of reduced shopper traffic and heavy store closures in the core apparel sector. This was due to e-commerce disruption and the trend of discretionary spend incrementally moving from products to services, as shoppers preferred to spend on experiences rather than products.
As retailers look to optimize their brick-and-mortar fleets in the context of sales migration to online channels, and the rationalization of mall space typically lagging behind store closures, the coronavirus-driven shutdown could represent a turning point for shopping centers, prompting the rationalization of mall space through 2020.
Research has recorded a total of 4,005 planned U.S. store closures so far this year, as of June 5. Stores closing include:
- Pier 1 Imports (liquidation; 936 store closures)
- GNC (multi-year mall-focused closure plan; 304)
- Tuesday Morning (bankruptcy; 230)
- Victoria’s Secret (fleet rationalization; 223)
- Papyrus (bankruptcy; 178)
- JCPenney (bankruptcy; 169)
Even with these closures, the total year-to-date permanent store closures in 2020 are currently significantly lower than this time in 2019. This won't last long as the research firm predicts that there will be a major uptick on the back of discretionary demand levels being below normal.
Bankruptcies
As far as bankruptcies are concerned the research company expects more companies will go straight to Chapter 7, wherein companies liquidate their assets. In normal circumstances, struggling retailers tend to file for Chapter 11 bankruptcy protection, in order to continue operating by restructuring their debt. To date15 major retailers have filed for bankruptcy to date in 2020, with a spate of filings in May on the back of the coronavirus crisis.
Looking at the bankruptcies to date in 2020 broken down by sectors: home and office retail sector has had the highest number of announced store closures so far in 2020 (1,161), apparel, footwear and accessories (986) and grocery (480).
