Glut Plagues Department Stores -- WSJ
25 April 2016 - 8:03AM
Dow Jones News
By Suzanne Kapner
Department stores need to close hundreds of locations if they
want to regain the productivity they had a decade ago, according to
new research from Green Street Advisors.
The real-estate research firm estimates that the closures could
include roughly 800 department stores, or about a fifth of all
anchor space in U.S. malls.
Sears Holdings Corp. alone would need to close 300, or 43%, of
its Sears stores to regain the sales per square foot it had in
2006, adjusted for inflation, according to Green Street.
"Department stores used to be a great catchall for different
brands, but today many of the brands have stores of their own, and
shoppers can also find them online," said DJ Busch, a senior Green
Street analyst.
Sears and other retailers including Macy's Inc. and J.C. Penney
Co. have closed hundreds of stores in recent years as business has
shifted to discounters or online merchants like Amazon.com Inc. But
the closures haven't been enough to offset a drop in sales, Green
Street said.
Sales at the nation's department stores averaged $165 a square
foot last year, a 24% drop since 2006, according to company
disclosures and Green Street estimates. Over the same period, the
stores reduced their physical footprint by 7% in aggregate.
Some chains have moved faster to cull their fleets than others.
On Thursday, Sears said it would close 78 stores, including 68
Kmarts, this summer, part of a plan announced in February to
"accelerate the closing of unprofitable stores." But Penney has
only closed seven stores this year out of a base of more than
1,000.
Green Street estimates that Penney would need to close a total
of 320 locations, or 31% of its stores to return to its 2006
productivity levels, while Nordstrom Inc. would need to shutter 30
stores, or a quarter of its footprint. By comparison, Macy's, which
closed 40 stores last year, would only need to eliminate a further
70 locations, or 9% of its base, Green Street estimates.
While declining to comment on the specifics of Green Street's
report, the chains have indicated that mass store closings aren't
the right strategy.
"There's a misperception out there that when we close a store,
that business transfers online," Ed Record, Penney's chief
financial officer, told analysts in November. "When we close a
store, particularly in a small market, we see our dot-com business
go down."
A spokesman for Nordstrom said that all of its stores are
profitable, and closing stores "is not our normal practice."
In addition to closing unproductive locations, Macy's has been
trying to get more shoppers in the door by adding Bluemercury
beauty shops and Backstage discount stores to its department
stores.
It may be unrealistic to expect that department stores could
ever return to historical levels of sales or profits given the
changing dynamics of retailing. Many retailers say they make less
money selling goods online than they do in their physical stores.
And with the Internet making it easier for consumers to comparison
shop, discounts have become the norm.
Department stores occupy about two-thirds of mall anchor space,
and even though they are being replaced by restaurants, grocery
stores, and big box retailers such as Dick's Sporting Goods Inc.
and Target Corp., there aren't always enough new tenants to go
around, said Green Street's Mr. Busch.
The store glut has important implications for the country's
weaker malls, which rely on their anchors to drive foot traffic.
"If department stores were to move forward and aggressively
streamline their physical presence it could result in several
hundred malls no longer being relevant retail destinations," he
said.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
April 25, 2016 02:48 ET (06:48 GMT)
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