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Retail Newsline: Either Way, Closures Are Coming

By Garrick Brown, Vice President of Retail Research, Americas

Store_facade2In the past week Taco Bell announced that it was going to experiment with a new taco shell made out of fried chicken. JC Penney’s announced a new partnership with Nike while Kohl’s will be partnering with the Under Armour brand; look for brand partnerships and more store-within-a-store concepts popping up at your local department store. That said, JC Penney’s CEO warned to expect more closures. Fact is that while JC Penney had a fairly decent holiday shopping season by comparison to the field, nothing has changed in terms of the Wall Street pressure on department store players to ramp up their omnichannel (i.e. eCommerce) growth and downsize their physical presence in the marketplace. And 30% seems to be the magic number for the department store players… so I would anticipate that we will probably end up seeing between 250 and 300 JC Penney stores go dark throughout this phase of omnichannel right-sizing… but keep in mind this process will be over a number of years…  That said, Macy’s ongoing closures are still just the planned unit shutdowns announced last year that basically account for about 15% of their stores.  I anticipate that we will probably eventually see another 100 to 150 stores added to that closure list… though AGAIN this process could extend over a number of years.

If you have been following my column you know that I argue it makes a lot more sense for all of these publicly traded guys to close these units on a slower and more strategic timetable based on lease expirations.  And if you follow me well enough to know I advocate for that strategy, then you also know that (for the most part) Wall Street doesn’t care and wants what it wants now.  So expect the lion’s share of these closures to be coming fast and furious over the next three years.  What is not clear to me yet is whether 2017 will end up being the peak year for closures or whether 2018 will earn that dubious honor.  If the economy flourishes under the new Trump administration, I suspect the continued improvement of consumer metrics and new legs under the economy will mean that we may get a slight respite in 2018… though probably not much since omnichannel rightsizing is about structural, nor cyclical changes in the economy and how Americans are shopping.  In other words, these closures are coming pretty much no matter what.

On the other hand, if the economy goes off the rails under a Trump administration and we end up seeing the end of this growth cycle in the next 12 to 18 months, you can bet that closures in 2018 will be even worse.  Then we will be talking not just about structural issues facing retail, but cyclical ones piled on top of that.  Let’s hope for the first scenario, but if you want some good reading check out the Wharton article in “The Big Picture” section this week on economic uncertainty being the big threat of 2017.

But as for that issue of these looming closures…one could take the Kierkegaard outlook, essentially you’re damned either way… but that is actually quite foolish.  Timing matters.  How many stores and when will matter a great deal in determining essentially what the market will be able to bear at any single time.  Cutting the mongoose up into digestible bites would clearly be preferable to the commercial real estate world over the challenge of swallowing the mongoose whole.

Later this week we will be releasing our Q4 2017 USA Shopping Center MarketBeat Report. If you are getting this publication, you are already on the mailing list, but basically without wanting to give too much away what we found as of the close of the year was a marketplace that, thanks to its adaptive ability, has been able to weather the many disruptions it has faced as of late fairly well so far.

Retail closures and bankruptcies were up significantly in 2016. Over the course of the year Cushman & Wakefield tracked over 4,000 major chain closures, a figure that surpassed 2010’s record 3,600 shuttered major chain storefronts. In addition, there were 26 major U.S. retailer bankruptcies during 2016 compared to 22 in both 2015 and 2014. (2009’s record of 37 major U.S. retailer bankruptcies still stands.)

But despite this, and for a number of reasons, shopping center vacancy actually declined slightly between the third and fourth quarters of 2016—from 7.4% to 7.3%. Our survey covers only neighborhood/community, lifestyle, power/regional and strip centers. Much of the most recent wave of closures has been in from the apparel and department store categories and thus predominately impact mall and urban retail locations. Ongoing contraction from the office supplies category (roughly 400 stores in 2016) and a couple of high profile bankruptcies (including Sports Authority’s 450-unit Chapter 7 liquidation earlier in the year) have had some impact on the shopping center types in our survey; on a national basis, the vacancy rate for power/regional centers has increased from 4.9% to 5.5% over the past 12 months. However, on the whole these shopping center types have posted steady occupancy growth from a number of retail categories that continue in expansion mode.

That said, the report discusses in detail those growth categories as well as the increasing challenges that they are facing. One growth category I don’t think you are going to see facing many challenges this year is the food hall.  This week Bed, Bath & Beyond unveiled its new Brooklyn store complete with a food hall.  Meanwhile, it looks like a shuttered JC Penney store in Rancho Cucamonga, California is going to be turned into a food hall.  This product type is white hot and getting hotter and (outside of Manhattan) the cycle for these is in its early innings.

I will be back with more random retailer notes on performance and growth plans next week, but in the meantime, there were a number of chains that released their holiday season same store sales comparables in the past week. The following is a brief sample from our comprehensive list of 2016 same store comps that we will continue to update until final numbers are in…..(for the full list, please click here)

 

Selected Holiday Shopping Season Same Store Sales Comps

Flat                               American Eagle Outfitters

-8.2%                            Ann Taylor

-3.1%                            Ascena Retail Group

+ but not released yet    At Home

-7.0%                            Banana Republic

-9.1%                            Barnes & Noble

2.0%                             Barnes & Noble eCommerce

0.2%                             Boot Barn

-15.5%                          Buckle

1.6%                             Catherine’s

-12.0%                          Cato

6.9%                             The Children’s Place

-7.0% to -8.0%              Christopher & Banks

5.0%                             Costco

Again, for the full list of same store sales comps, click here

 

I will be back with a lot more next week. Here is a new resource our Chief Economist, Kevin Thorpe, recently released. It is our new U.S. Macro Economic Forecast.  You can check it out by clicking here.

Additionally, a couple of weeks ago we released a new retail report, Food Halls of America, as well as the first episode in an accompanying series of videos: Cool Streets: Food Halls of America Manhattan edition. If you would like to check out that report and video please just click here.

You can watch our webinar Clicks vs. Bricks: Why Cyber Monday is taking over Black Friday by clicking here.

Our Main Streets Across the World Report tracks high street retail around the world and breaks out the globe’s premier shopping districts by continent and average asking rent. It is an invaluable resource and you can access it by clicking here.

And for those of you still trying to figure out what the U.S. Presidential Election really means in terms of the potential impact, our Chief Economist Kevin Thorpe released a report recently on that very topic. If you would like to check out the report, Trump: Impact on the U.S. Economy and the Property Markets, just click here.

By the way, here are a few other links that you might also find useful as well:

For the latest US shopping center statistics you can check out the National Shopping Center MarketBeat for Q3 2016 by clicking here. We will have a new report covering Q4 2016 next week.

You can access the 2016 North American Retailer and Restaurant Expansion Guide by clicking here.

Additionally, you can check out the Cool Streets of North America Report and accompanying video series by clicking here.

This post is commentary from the latest weekly edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing garrick.brown@cushwake.com.

garrick-brownGarrick serves as Vice President of Retail Research for the Americas. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.

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