Features, Retail Insights

Why Those Store Closing Numbers Are So Very Misleading

The sky is falling…but it’s really not. Amidst all the doom-and-gloom about the death of physical retailing and the demise of oh-so-many stores, it turns out that maybe things aren’t so bad after all.

A new study suggests, in fact, quite the opposite, that more retailers are opening stores than those that are closing them. It doesn’t dispute that thousands and thousands of stores have closed so far this year, probably on the way to a record-setting pace. But it counters that big headline with a more intelligent interpretation of the numbers and the fact that plenty of companies are opening plenty of stores.

The just-released report, from IHL Group, a research and advisory group, paints a more positive picture of physical retailing, finding that five times as many retailing corporations are opening stores as those closing them. “Retail Renaissance – True Story of Store Openings/Closings” says that the number of chains adding stores in 2019 has increased 56 percent, while the number that is closing stores has decreased by 66 percent in the last year.

In absolute numbers, just over 21,200 stores opened last year, offset by about 19,700 closings. So far in 2019, there have been just under 11,400 openings and about 8,400 closings. Over the past 18 months, there has been a net gain of about 4,400 additional stores.

Going…Going…Gone

The culprits in the store closing panic are several big national chains that are either doing widespread closings or shutting down completely. In 2018, 20 chains represented 52 percent of all stores closed. So far this year, these 20 chains represent 75 percent of all closures. This includes retailing companies like Payless, Gymboree, Shopko and Things Remembered that have shut down completely, as well as stores like Fred’s and Family Dollar that have each closed more than 300 doors so far this year.

“Clearly there is significant pressure in apparel and department stores,” said Lee Holman, vice president of research for the Franklin, TN based IHL. “However, in every single retail segment there are more chains that are expanding their number of stores than closing stores.”

Digging deeper provides some more nuances of what’s truly happening in retailing. IHL says 64 percent of retailers are increasing the number of stores in 2019, while 12 percent are decreasing and 24 percent are reporting no change in store counts. This compares to 2018 with 41 percent increasing store counts, 37 percent decreasing and 22 percent with no change. That made 2018 a peak year for the number of chains closing stores.

The big openers this year, the study found, come from the dollar, automotive and drug channels, including Dollar General, Dollar Tree, O’Reilly Automotive and Walgreens. The restaurant and food services category is also expected to see big gains with the leading store openers including Starbucks, Chipotle, Dunkin Donuts and Dominoes. However, the ratios are consistent across all retailing channels, it said, with food/drug/convenience/mass merchants at plus 9.5; apparel, hard goods and department stores at plus 3.7; and restaurants (both fast food and table service) at plus 6.3 chains opening vs closing stores.

Who’s to Blame

IHL knows where to pin the blame: the two primary characteristics of chains closing the most stores, it found, have been too much debt and rapid overexpansion driven by historically low-interest rates for the last 10 years. Lack of innovation and short-sighted private equity has also played a significant role in many of the chains.

Retailers without these factors, it says, have continued to thrive in this market, noting that when a retailer closes a lot of stores, it is more of an indictment on the individual retailer rather than an overall retail industry problem, as has often been reported. The IHL study is a real eye-opener for retailing, though it does point to the well-known problems the business is having to face. “Without question there are many challenges to retailers today but those that are sick are limited to a focused group of retailers. Overall (the) state of the retail industry is strong.”

Take that doom-and-gloomers.

Warren Shoulberg was in literally two dozen stores over the past few days. He was not alone.

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