Macy’s, JC Penney, and Gap among retailers that may need to lose more stores
Daily headlines about store closings and bankruptcies may seem like a death knell for American retail. It’s not the final chapter, but there are a lot more store and mall closings still to come.
As many as 2,000 stores combined may still need to be closed from retailers including JC Penney, Macy’s, Gap, Ascena Retail Group and others, Cowen & Co. said in a study released Thursday. It added that retailers including Macy’s and Penney may need to accelerate their store-closing targets.
For instance, while Macy’s has said it would close 100 stores, or about 14% of its store fleet as of the end of Q2 2016, Cowen analyst Oliver Chen said the retailer may need to shut about 21% of its doors instead. Meanwhile, for Penney, the analyst said the mid-priced chain may need to shutter as many as 26% of its store locations, compared to management’s announcement that it would close about 14%.
Too Many Stores, not Enough People
The issue is not just that retailers have failed to entice customers with must-have fashions and other hot items. Neither is it only about Amazon and other online retailers stealing consumers’ wallet share—Cowen’s consumer tracker and studies showed that customers still prefer to shop in physical locations 75% of the time.
Nor is it simply that evolving millennial-driven consumer spending has shifted in favor of shelling out for entertainment and experiences over buying material things.
Mainly, it’s just a sign that the retail sector as a whole is finally coming to terms with supply and demand.
UP TO 20% OF MALLS WILL HAVE TO BE REPURPOSED OR CLOSED.The US is “overstored” compared to other markets, Chen said in a video presentation to clients. “Up to 20% of malls will have to be repurposed or closed.”
In the US, Cowen found, there is the equivalent of about 23.5 square feet of shopping center space per person. By comparison, the figure is 16.4 square feet per capita in Canada. And in the UK, France, Spain and Italy, it’s less than 5 square feet per capita.
US mall growth has significantly outpaced population growth over the past 50 years The number of US malls increased roughly 4X, from 306 in 1970 to 1,220 in 2016, the Cowen study said. The US population, in the meantime, has increased by only about 1.6X.
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“We believe 2016 was likely the high water mark in terms of number of malls in the US,” the Cowen report said. It added that up to 240 malls, or about 20% of the total, could be on the chopping block or “repurposed” in various ways.
As dramatic as the closings are, it’s not like malls are breathing their last gasp. Most of the troubled malls are so-called C and D malls, which generally are in less-coveted locations, are more run down and have less-desirable brands. They represent a third of malls in the US and generate less than $350 sales per square foot, compared to A malls, which occupy prime locations and have coveted tenants like Apple.
In fact, those A malls, while only about 28% of U.S. malls, generate sales square foot of at least $530 (with trophy malls getting more than $825) and represent about 70% of total US mall value, Cowen said, citing Green Street Advisors data.
The Cowen study also showed that malls actually represent only about 15% of US shopping center square footage. Measured by the number of shopping centers, malls only represent about 1.1% of US total of nearly 116,000 shopping centers. Strip malls and convenience stores make up 60% all shopping center count, according to the Cowen study.
“Despite significant concerns regarding the end of malls and traditional brick & mortar retail, malls are only a small percentage of total retail in the US,” the report said.
And while store closings may be necessary for some retailers, there are others that are outperforming and winning share in the shifting consumer spending climate, or those that Chen called “un-Amazonable.”
TJ Maxx and Marshalls parent TJX and rival Ross Stores, for instance, could increase their store count by 50% to 60% while beauty product chain Ulta Beauty can increase store number by 60%, he said. Costco, which Cowen’s study showed is increasing membership among the coveted millennial group, can open about 90 stores over the next five years from 500-plus currently, Chen said.
by Andria Cheng
