The year started with Macy’s announcing the closure of 63 stores and eliminating 10,000 jobs as the departmental store chain continued to grapple with weak sales during the holiday season. Many experts are relating the store closures to the growth of digital platform and also to retailers falling behind in implementing new strategies with time. The growing influence of millennials, who are accustomed to digital stimulations rather than physically visiting a store themselves, is also weighing down upon many stores. This has also led to a lot of retail mergers and consolidations that leave only a few departmental store options.
Many famous malls such as Fairlane Town Center in suburban Detroit are replacing departmental store space for Ford Motors, converting 2,40,000 sq. feet of former retail space into product-planning centre. Many such malls across the US are signing on non-traditional, high-traffic tenants as mall vacancies rise due to brands shutting shop. According to the Green Street Advisors, there are approximately 200 US malls that are at risk of shutting down in the coming years. The analytics firm also estimates that retailers will need to close about 800 locations, or a fifth of total mall anchor spaces to achieve the sales productivity of the mid-2000s.
There have been hundreds of store closures including Macy’s, Walmart, etc. with a few announcing bankruptcies like Sports Authority, Sports Chalet, and more. in 2016 with 2017 being a year in which retailers are treading their path carefully, while experts believe that the future is e-commerce. “It’s going to be a year of transition, a year of reckoning, and a year of awakening for retailers,” believes Marshal Cohen, Chief Industry Analyst, NPD Group. According to MasterCard’s SpendingPulse, retail sales excluding autos and gasoline rose 4 per cent from 1 November to 24 December 2016, suggesting a stronger than expected holiday season. Although digital sales continued to boom with Amazon grabbing an even larger e-commerce share, brick and mortar locations saw declining trends.
The heavy discounts and promotions during the holiday sales while favouring a few retailers, did not work for many. According to Retail Metrics, outside of a few busy hours on the weekends, the 2016 holiday season was somewhat eerily quiet at the malls. The firm observed a handful of people at Foot Locker (FL), Abercrombie & Fitch (ANF) brand Hollister, American Eagle Outfitters (AEO) and Macy’s, L Brands’ (LB) Bath & Body Works, where there always had been a buzz in the last few years. In its latest report, NPD has reported that during the week ending 10 December, dollar sales in the first six weeks of the holiday retail season were lagging the prior year period by 4 per cent, while Prodco Retail Traffic Index reported brick and mortar traffic falling about 10 per cent at stores through December 2016.
According to industry experts, almost 70 per cent of holiday sales went to retailers that have both a physical and an online presence – highlighting the importance for retailers to “keep pace with technology”. What seems to be happening is an increasing base of consumers, especially the millennials shifting to online and mobile spending for experiences rather than products itself, and add to that the online players, such as Amazon, innovating and introducing strategies through heavy discounts and promotions that were witnessed during this holiday season. Although luxury malls housing luxury brands such as Dior, Louis Vuitton, Chanel, Tiffany’s continue to perform well, average malls with mid-level brands are experiencing the biggest hit due to a shift from offline to online.
Irrespective of this, there are a few brands such as Home Depot, Lowe’s, TJX, Ross Stores, Burlington, and Ulta Beauty that have displayed a strong performance. Others, such as Nordstrom are also doing so by being an “omnichannel” retailer that knows how to engage its customers across all platforms. Unlike Macy’s or Kohl’s that compete with Amazon and everyone else on the internet, Nordstrom has differentiated itself by catering to more affluent shoppers through a highly curated selection. “Retail omnipresence is the key. Instead of simply giving customers a way to buy products both in-store and online, it would behoove retailers to latch onto shoppers before, during and after the transaction. Educate them and anticipate their needs ahead of potential transactions, allow them different ways to buy, and then stay in touch via product reviews or other methods following the purchase. The goal that the store becomes the epicenter for the entire process,” informs Marshal.
Although many experts are relating the strength of online sales as a reason for recent store closures, many also believe that these two channels – offline and online – can also have simultaneous successes. Mostly store closures are announced at the start of the year as retailers wait to close stores after holiday season ends so that they can squeeze in the last bit of profit or use the season to measure whether the store can make a rebound. Experts believe the closure of under-performing retail stores is a cost-cutting measure adopted by retailers, therefore reflecting on the performance of the individual retailer rather than the whole retailer. According to CoStar and JLL Research, the market as a whole is strong, indicated by the national retail vacancy rate that dropped by 5.1 per cent, a full percentage point lower than it was before the recession. It is the time when only those retailers would survive who are making shopping an experience for their consumers, whether in a mall or online.