The U.S. retail sector still has too many stores, and the underlying trend is towards more closures.
While retailers added nearly 10,000 doors after an accelerated period of store closures in 2022, UBS retail analyst Michael Lasser believes there will be more store closings than openings ahead. He expects a net loss of 45,000 stores in the retail sector over the next few years.
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“We think retailers with high leverage to shopping malls will likely continue closing stores,” Lasser said. In apparel, he said store closures would hit 16,500 locations over the next five years, with most “store closures happening at department Stores and specialty retail while off-price retailers should expand their footprint,” the analyst predicted.
Lasser prefers brands with strong direct-to-consumer focus and high pricing power, such as athletic brand On Holding AG, Deckers Brands and Ralph Lauren Corp. He’s bearish on Nordstrom Inc., Kohl’s Corp., Macy’s Inc. and Dillard’s Inc.
The predictions on the pace of store closures has shifted each year as factors such as e-commerce growth have changed. Then there’s been the unpredictability of consumer shopping trends as retailers try to understand how shoppers will pivot in the face of rising inflationary pressures.
Lasser made headlines in 2020 when he predicted that 100,000 stores could disappear by 2025, with apparel the hardest hit sector. That prediction was based on e-commerce driving growth in retail, forcing merchants to rationalize their store footprints. In 2021, Lasser and the UBS retail team said apparel stores could lose 21,000 stores by 2026, contributing to the overall loss of 80,000 retail doors. But as retailers evolve and adapt store formats, the UBS team said 20 percent of stores could fulfill digital orders. And the 80,000 prediction was pulled back to 50,000 in 2022 as about one-fourth of all e-commerce purchases was expected to rely on a store for fulfillment. That said, with retail sales growing 4 percent until 2026 on the back of high inflation, Lasser felt that apparel and accessories stores and home furnishing locations would see the most shutdowns.
While there weren’t that many fashion bankruptcies in 2023, the home sector was the year’s biggest loser. Those bankruptcies in home contributed to about 1,228 closed retail doors in 2023. Top bankrupt names in home include Tuesday Morning, Bed Bath & Beyond, and Mitchell Gold + Bob Williams.