Why Retail Chain Store Locations Are Being Closed
Online Competition on Price, Choice and Convenience
It’s the age of the super-sized e-tailer (e.g., Amazon), and brick-and-mortar retailers are having trouble competing. The dominance of these mega online outlets is based on lower prices, many more options and the convenience factor - sit at home on the couch and surf. Thus, many national and chain retailers must cut-back or close-up.
Prior to the recession, these chain stores were opening locations like wildfire.
But then the recession hit, and many shoppers traded down to discount chains and went online. Brick-and-mortar restaurant and retail chains have committed to closing thousands of physical store locations in order to refocus resources on growing Internet and mobile retail sales channels.
Everyone is affected, even the biggest names like Barnes and Noble, The Gap, JC Penney, Macy's, Nordstrom, Office Depot, Sears, and Starbucks. Sports Authority went out of business.
Retail Store Closings
Generally, large retail chains are reluctant to be publicly transparent about their future store closing plans because of the speculation it triggers with retail industry experts and consumers. This is particularly true of publicly traded retail companies that don't want to create uncertainty with retail investors and analysts.
While store closings are sometimes viewed favorably in the investment community, just as often store closing announcements cause investors, analysts, consumers, and news reporters to lose confidence in a retail company's relevance and ability to compete in a quickly changing and ultra-competitive retail environment.
It's important for anyone interested enough to pay attention to store closings to remember that store closings in an omnichannel world don't have nearly as much significance as they did when a physical store was the only sales outlet. For most retailers with Internet and mobile presence, store closings represent not much more than a shift in focus.
And that focus is, for the most part, being directed by consumers, not the people sitting in the leather boardroom seats.
Store Closings in the First Quarter
Traditionally the first quarter of any calendar year is store closing season for the U.S. retail industry because the Christmas holiday shopping season is completed, and underperforming stores need to be eliminated so that they don't drag the entire chain down until the next Black Friday rolls around.
It May Be Good Business, But It Doesn't Look Good
Even though it seems logical that closing underperforming brick-and-mortar retail store locations would have a positive effect on a retail company's bottom line, most people can't extract the negative connotations associated with going out of business sales, downsizing companies, and shrinking chains. In the U.S. retail industry, it is generally accepted that business growth is good. Therefore it follows that anything less than growth must be bad. So goes the logic perpetuated by stock market performance.
To get back to their pre-recession productivity peak, the nation’s top department stores would have to close hundreds of locations, according to a leading real estate analysis firm.
Brick-an-Mortar's New Role
Consider that it may not be in the retailer's best long-term interests to close a lot of stores. Retail locations now play crucial roles in department stores’ e-commerce, allowing not them not only to compete with Amazon but also to serve as additional distribution centers and pick-up spots for online orders, a center for returns, and an opportunity to offer face-to-face customer service.