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Retailers Wait Out Leases to Close More Stores

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The start of the year saw a flurry of store closures and the remainder promises more to come—retailers are just waiting for their leases to expire.

According to National Real Estate Investor, where retailers were once buying out leases and closing stores almost overnight, now they’re making announcements of closures ahead of time, even years in advance, and shuttering stores at lease ends.

Mark Dufton, CEO of DJM Real Estate, told Real Estate Investor that landlords are less interested in lease buyouts these days. “They don’t want to take the space back, especially in [class]-B and -C malls,” he said, noting that landlords have made it too pricey for retailers to buy out leases. And retail tenants are only going to buy out leases if makes financial sense, which is rarely the case.

Since the start of the year, Macy’s announced it would close 14 stores, Wet Seal 338, Chico’s said it would shut down 120, J.C. Penney said 40, Kate Spade closed all 19 of its Saturday stores, all 12 of its Jack Spade shops and PVH shuttered 120 Izod stores when it closed the retail division, though 20 were to be converted to Calvin Klein and Tommy Hilfiger formats.

Retailers and restaurateurs announced closings of more than 3,500 locales totaling roughly 19.9 million square feet, according to the U.S. Retail Real Estate Supply Conditions report from ICSC Research and PNC Real Estate Research. Home entertainment and apparel retailers made up 3,403 stores, or 95.6% of the total closure announcements in the quarter.

Real Estate Investor said the number of store closing announcements made in the first quarter of 2015 were up a sizable 58 percent compared to the prior year period, though the space slated to be closed dipped 27 percent.

Many of the closures came from ailing retailers, but Al Williams, principal of Excess Space Retail Services, told Real Estate Investor that just as many came from brands in good shape.

“I think it goes beyond retailer economics,” he said. “I think many of the closures are a result of shifting demographics in certain trade areas and a change in the way consumers, especially Millennials, are shopping.”

Retailers have gotten savvier about their store strategies in recent months and many are expected to continue trimming their brick-and-mortar excess—eliminating poor performers and ill-positioned locations—during the remainder of this year.

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