The brick-and-mortar retail world has had a rough few years, with retailers closing nearly 6,000 stores in the United States in 2018.
This year has actually proven worse on this front, with that number being beaten a mere 15 weeks into the year; as of April 2019, a combined 5,994 stores were closed or scheduled for closing. If this trend continues for the rest of the year then 2019 might even beat the 8,000+ stores that closed two years ago in 2017.
The Apocalypse Is Here
Dubbed the “retail apocalypse” by some, the closures of the last few years have occurred for a variety of reasons.
Between 2018 and 2019, several retailers including Toys R Us, Payless ShoeSource, Gymboree and Charlotte Russe have announced plans to close all stores and liquidate their merchandise as a part of bankruptcy proceedings. Other companies are closing underperforming stores as part of a realignment strategy, sometimes in the hundreds. Family Dollar, for instance, will shutter 390 stores this year and see another 200 rebranded as Dollar Tree stores to adjust its market targeting.
Do these increasing number of closures signal major issues for the retail market, and perhaps for the economy in general? Not necessarily. While large numbers of store closures and company liquidations are never good, the underlying issue with the so-called “retail apocalypse” may not be what it first appears.
A Changing Economy
While a look at the numbers indicates a fairly widespread trend of closing stores, some retailers are experiencing growth in the same economy that’s seeing all of these closures.
The recently-released 2019 edition of the “State of Retailing Online” report by Forrester and the National Retail Federation may shed a little light on this trend. The report identified one significant difference between the companies that are struggling and those that are doing well: The better-performing stores almost always have a better integration between their in-store and online experiences than those that are floundering.
Some key highlights of the report included the following:
- 54% of retailers planned to open new locations
- The costs of maintaining eCommerce websites is increasing as online shopping becomes even more common
- Omnichannel distribution (a combination of both online and in-store shopping) continues to grow in popularity, though many retailers struggle to implement true Omnichannel solutions
- Digital marketing continues to shift toward social media
While there were a number of other points covered in the report, it’s clear from these four that there is an ongoing shift in the way that consumers prefer to do business.
Despite the store closings, there is still a significant amount of growth going on in the retail world. With increasing costs for doing business online and struggles in implementing Omnichannel solutions, many retailers are looking to cut costs in underperforming areas.
For these retailers, the cuts and closures being done now are intended to prevent longer-term failures in their business models. Adapting to economic shifts can take time, so by closing less-popular stores the retailers are attempting to streamline their operations. The hope is that the streamlining will reduce overall costs until they can make the required adjustments to their business and marketing strategies.
2019 Isn’t Finished
Until these retailers can figure out an effective strategy for the changing economy, store closures and even company bankruptcies will continue.
Some will be forced into the closures by business models that aren’t keeping up with online shopping. Others will undertake preemptive closures to protect the companies from having to make larger cuts down the road. Regardless, the “retail apocalypse” will continue throughout this year and well into 2020 at the very least.
Of course, this is of little consolation for those who are laid off or left unemployed by these cutbacks. Stability might return to the retail market in time, but the road will likely be bumpy for at least a few more years while the sector adjusts to the changing economy. With any luck, though, the store openings and other opportunities afforded by omnichannel expansion will start to outpace the closings before too much longer.