Store closures rocked retail in 2017, with 2018 bound to be no different

NEW YORK (Heartland Newsfeed/CNBC) — A larger-than-average slew of retail bankruptcies and stores being shuttered rocked the industry this year, making headlines and dragging even some of the better-performing companies such as Home Depot, TJ Maxx and Costco down with the dismal news.

So far in 2017, 6,985 store closure announcements have been made, according to a tracker from FGRT (formerly Fung Global Retail & Technology). That’s up more than 200 percent from a year ago, based on the firm’s findings.

“Store closures are a major theme in U.S. retail, as many overspaced retailers are reacting to the migration of sales online by closing physical locations,” FGRT’s Deborah Weinswig wrote in a recent note to clients.

Still, shoppers may not yet realize the full impact of these changes. While announcements were made by retailers such as Charming Charlie, Perfumania, Crocs and GameStop, among others, some have yet to shutter their doors. The closure may not come until 2020, in some cases.

Ascena Retail Group, for example, which owns names such as Dressbarn, Loft and Ann Taylor, could close as many as 667 stores by mid-2019, depending on how negotiations pan out with U.S. mall and shopping center landlords.

Heading into 2018, some of those landlords feel as if they have more authority and won’t allow retailers’ doors to close without a fight.

A recent court ruling in favor of the largest U.S. mall owner, Simon Property Group, blocked Starbucks from closing all of its Teavana stores across Simon’s properties as planned. Instead, Starbucks must adhere to an operating covenant within their contracts.

The news sparked cheers from other retail real estate investment trust CEOs, which discussed the implications at a recent conference arranged by the International Council of Shopping Centers in New York, applauding Simon.

Simon’s moves could give REITs the push and precedent they need to try to prevent an onslaught of store closures from happening. However, some restructuring advisors (on the flip side) say they will begin to ask their clients to close stores abruptly, leaving as little room as possible to negotiate with any landlord or be sued as Starbucks was.

Gap and J. Crew are other apparel names that have announced plans to shutter some locations over the next year to two years, but the retailers haven’t set a firm date. H&M, which reports its full-year results late next month, is also expected to open fewer stores than planned next year and will begin to close some of its doors.

According to FGRT, the most closure announcements so far stem from RadioShack, Payless and Rue21, all of which filed for bankruptcy protection in 2017. Sears Holdings, Gymboree, The Limited and hhgregg are also at the top of that list, with Sears being the only name that hasn’t yet gone bankrupt.

More store closures are expected to come from the parent of Sears and Kmart, which has said it plans to continue to use its real estate to unlock cash in a bid to return to profitability and operate with a leaner physical footprint.

Toys R Us, having just filed for bankruptcy protection in September, is also now rumored to be considering closing underperforming locations, especially those in proximity to other toy stores.

“I think the big theme is companies have really over-levered themselves,” Moody’s analyst Christina Boni told CNBC. “If they can’t make critical investments, they have to ask themselves if it makes sense to plod on another year or if it’s of better interest in the long term … to make a better [store] structure.”

This past year, department store chains Macy’s, J.C. Penney and Sears came into the post-holiday shopping season with news of store closures, which sent retail stocks tumbling.

On a brighter note, there are still retailers opening stores across the U.S., though those numbers haven’t been as pronounced. About 3,400 openings have been announced so far in 2017, according to FGRT. The fastest-growing names have been Dollar General, Dollar Tree, Aldi and TJX (the owner of TJ Maxx and HomeGoods).

Beauty retailers Ulta and Sephora continue to expand their footprints, while companies including Target, Nordstrom and Forever 21 are also opening more stores but testing smaller locations.

Jake Leonard

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Jake Leonard, a broadcast media and journalism veteran, is the editor-in-chief of Heartland Newsfeed. Leonard is also GM and program director of Heartland Newsfeed Radio Network, wrestling editor and contributing writer for Ambush Sports, a contributing writer for My Sports Vote and Midwest Sports Network, and a former contributor to Bleacher Report and Overtime Heroics. He resides at home in Nokomis, Ill. with his dog Buster.

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