Retail store closings are expected to hit a five-year low. but not all are good news
New York (CNN Business) -- Retail store closings in the United States are expected to fall to a five-year low in 2021, but that's not exactly good news.
The reason is that the industry, which has been hit in recent years by a shift to online shopping, may have bottomed out last year, when closures were the highest on record.
Retail stores in the United States are on track to announce about 3,700 store closings this year, the lowest annual number since 2016, according to commercial real estate data and analytics firm CoStar Group, which tracks the publicly announced plans of retail stores. retail chains. Closures are estimated to account for about 40 million square feet of space, the lowest since CoStar began tracking such data in 2008.
Last year, a record 12,200 stores closed, according to CoStar, as the pandemic pushed consumers to limit their visits to stories.
In 2020, the bottom would have been reached with the closure of retailers, exceeding the closure of 12,000 physical stores. (Credit: Spencer Platt/Getty Images)
So now the pace of closures is logically slowing down. Some of that is because many big chains that were pending bankruptcy, such as Sears, Payless and Ann Taylor's parent Ascena Retail, have already filed in the last two years. A bankruptcy filing often means closing stores in advance. Only 10 retail companies have filed for bankruptcy this year, Moody's said in an Aug. 13 research report, compared with nearly 70 last year and between 25 and 35 in the previous four years.
advertisingA slow recovery for retail stores
There is also evidence of a recovery from a difficult 2020. Customers have returned to shopping in person after vaccines were rolled out and federal stimulus checks have bolstered their purchasing power.
I always receive questions like how do I work? How do I manage everything? 1. Have an admin day Usually I do it on… https://t.co/RQiLwMoiZf
— Princess Jiee ◡̈ 🏴 Sat Jul 24 10:15:58 +0000 2021
That has provided much-needed relief to some struggling retailers who have been able to secure more favorable rental terms from landlords desperate for tenants.
"There's less pressure to close," said Ken Fenyo, president of retail research and advisory firm Coresight Research. "You're seeing a strong return to the store. People are spending and starting to go out. That suggests retailers to close fewer stores than they have and try to take advantage of it."
"It's a good time to come to an agreement on rents," he added, and some tenants have been able to negotiate more flexible terms with landlords to avoid closing.
Lots of uncertainty for retailers
However, the delta variant of covid-19 sweeping across the country could change the landscape for store closures this year and next. If shoppers start avoiding stores and shift more to online stores, or if non-essential stores must temporarily close again, as happened at the start of the pandemic, permanent closures may accelerate.
"There is certainly a lot of uncertainty as we head into the fall and holiday season," Fenyo said. "If things get worse and we see the variant really start to affect sales, we would expect to see a pick up in closings."
In July, retail sales increased 15.8% from a year earlier, according to the latest data from the Census Bureau. Sales at clothing stores increased 43.4%, while sales at department stores rose 24.3%. Both areas have rebounded this year as many customers refresh their wardrobes after a year of sheltering at home.
But looking sequentially, July retail sales excluding autos fell 0.4% from the previous month, raising questions about whether a resurgence of the virus will cause consumers to cut back on spending.
In the long term, the continued growth of online shopping may also mean that chains need fewer stores than before.
UBS estimates that around 80,000 US stores will close over the next five years as online shopping rises from around 15% of retail sales today to 27% by 2026. If e-commerce sales rise to 30% of retail sales by 2026, almost 150,000 stores may close, predicts UBS.
Retailers
