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Will More Retailers be Forced to Cut Stores to Stay Competitive?

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In this heavily promotional holiday season, when sales are expected to be little more than modest, decreased demand may not be the reason for slipping sales; maybe retailers just have too many stores.

The Financial Times calls this oversaturation of the retail market “supply glut” and says brands have built more shops than Americans need. The surfeit of stores is drowning consumers in a sea of selection and the only way to sustain positive sales in the future is to purge some of them.

“Whatever people are spending, it is being spread too thinly across a crowded landscape of stores. Almost every big retailer needs to close some locations down,” according to the Financial Times, and many of them are doing just that.

Retailers are increasingly shutting doors, selling off their worst–and sometimes even best–performing stores in an effort to increase profitability. Some see these store cuts as a sign of the retailer’s desperation, but it may just be a new strategy in the face of a shifting shopping landscape.

As retail slinks away from traditional brick-and-mortar selling in favor of more online and omnichannel experiences, those with store-centric operations could find themselves burdened by realty.

Teen apparel retailer Abercrombie and Fitch has steadily been shuttering stores and announced last month that it would be closing all of its twenty-eight stand-alone Gilly Hicks intimate apparel shops by the end of the first quarter of fiscal 2014 to improve margins. The Gilly Hicks brand will instead be sold at the company’s Hollister stores and online.

Sears has sold off a set of stores over the past two years, including some of their most profitable locations, because, according to the ailing retailer, the value of the store sales outweighs future profit loss from the stores’ closing.

Howard Rieff, Sears Holdings director of corporate communications, explained the unusual strategy saying, “The store closures are part of a series of actions we’re taking to reduce on-going expenses, adjust our asset base, and accelerate the transformation of our business model. These actions will better enable us to focus our investments on serving our customers and members through integrated retail – at the store, online and in the home.”

The ease and efficiency of shopping online has brought on “the death of the mall” and a struggle for the traditional retailer.

E-commerce king Amazon has bullied many stores out of the game with its continuously innovative digital strategy. Their e-tailing model has so far been impossible to catch and largely responsible for the shifting scope of the retail world.

CNBC Squawk Box held a retail-focused feature last week where Home Shopping Network (HSN) CEO Mindy Grossman joined guest host and National Retail Federation (NRF) board chairman Steve Sadove to discuss the move to more integrated retail and what’s happening with consumer shopping generally and, in particular, this holiday season.

Grossman stressed the need for retailers to continue collaboration between content, commerce and community, saying this is the year of digital and mobile sales. At the end of third quarter, mobile sales at HSN accounted for 12 percent of total sales and that number continues to climb–mobile sales on Black Friday were more than 50 percent of the channel’s total sales for the first time ever.

“It’s not just the season of mobile, we’re in the landscape of mobile,” Grossman added.

Online sales will continue to grow at a rate most brick-and-mortar retailers won’t see. As of the second quarter of 2013, Internet technology company comScore reported retail e-commerce sales growth of 16 percent year-over-year to $49.8 billion, making this the fifteenth consecutive year of sales growth and the eleventh consecutive quarter of double-digit growth.

Letting go of retail spaces that consumers visit increasingly less in order to be more competitive could become a new best practice and, as the Financial Times notes, voluntary store closures are far better than forced liquidations.

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