Thousands of stores are going dark in 2018.
The latest closures announced by Toys R Us added to an industrywide headache shared by retailers and real estate developers. By the end of March more than 76 million square feet of retail space was already slated to close this year, according to commercial real estate agency CoStar Group. For all of 2017, about 105 million square feet of retail space shuttered.
“The friction is putting pressure on landlords to drop rents,” Suzanne Mulvee, of CoStar Group, told CNBC. “There are not enough folks [in retail] moving in.”
Brands such as Ulta, Target and Warby Parker are opening up shops across the U.S., but those won’t be enough to fill in the gaps left by retailers such as Sears Holdings, Walmart’s Sam’s Club, Bon-Ton and Toys R Us. Landlords are still looking for replacements today for liquidations years ago by Sports Authority and Circuit City.
Discounters like Ross Stores, Burlington and TJX have been “incredible drivers of demand in the marketplace,” Mulvee said, citing their more aggressive expansion plans. “But the question is, how much more are they going to grow?”
Some real estate developers have found relief in pop-up concepts, reinvented food halls, growing e-commerce brands and other entertainment venues. But those solutions won’t be enough for every property, especially as the store closure announcements continue to roll out.
In the case of Toys R Us, the hundreds of store closures come somewhat unexpectedly. The toy retailer was planning to reorganize its business and close just 180 stores. But as debts piled up and vendor payments came due, executives chose to liquidate the business entirely.
Most other retailers closing stores, though, say that downsizing their fleets will help them keep pace with shoppers who are buying more online. The retail culture used to be one that rewarded companies for having a more robust store count, but that’s not the case anymore.
Industry consultants don’t seem to have a concrete answer for when the scaling back will halt, if ever.
“I think ultimately it will be three to five years out when retailers have a better sense of the balance between their e-commerce businesses and how many stores they can effectively have open,” Retail Metrics founder Ken Perkins told CNBC. “Once that balance is struck — and maybe it’s never fully struck — e-commerce growth will slow from really rapid increases to more normalized levels.”