Analysts believe 100,000 stores could be wiped off the retail map by 2025—and apparel could be hardest hit.
With e-commerce driving growth in retail, especially as the coronavirus pandemic forces consumers to digital channels for both discretionary and essential needs, merchants will have a tough time rationalizing their store footprints, a trend that could accelerate the so-called retail apocalypse industry insiders have been debating for years.
UBS retail analyst Michael Lasser predicts online penetration will hit 25 percent by 2025, up from 15 percent in 2019. By his calculations, each 100 basis points that e-commerce gains will drive 10,000 stores out of business.
In a worst-case scenario in which e-commerce reaches 30 percent penetration in that same frame, more than 150,000 retail doors might go dark. Meanwhile, a 20 percent penetration for online retail would drive 50,000 stores to shut off the lights for good.
Retailers with scale, such as Costco, The Home Depot, Lowe’s, Ross, Target, TJX, and Walmart, to name a few, are seen as the winners in this scenario, capable of leveraging their resources and scale to survive tumult and upheaval.
Though store closures will vary be sector, apparel retail is seen as the biggest loser, with 24,000 doors expected to disappear from malls and Main Streets. Consumer electronics will lose 12,500 doors, while home furnishings will close 11,300 stores. Grocery retailers are predicted to close 11,000 locations. And as those doors close, Lasser expects enclosed malls will be under pressure as well.
“Currently there are nine malls per 1 million households. This is up from eight in 1980,” Lasser said, adding there could be about 100 mall closures in the next half decade. It comes as little surprise that smaller retailers are at higher risk.
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Amazon’s dominant growth has ratcheted up pressure on the retail sector, especially for store-based brands. The online titan, Lasser noted, operated roughly 190 million square feet of U.S. fulfillment space in 2019, a meteoric rise from 12 million in 2009.
“This was the equivalent of adding 40,000 retail stores,” he said. Wayfair’s trajectory has closely followed Amazon’s, with fulfillment center square footage jumping to 15.5 million in 2019 from 795,000 in the 2014-2015 frame.
On the department store front, Lasser expects the channel to see more store closures ahead as store productivity has now plunged below peak levels from the second quarter of 2005 when sales per store averged $18.6 million versus $10 million today.
“We think regional, highly leveraged chains will accelerate closures and potentially go out of business,” Lasser said. “Combining with challenging same-store sales trends at the remaining department stores, we don’t expect industry sales or productivity to go higher.”
Because department stores are losing fewer customers to off-price, he expects retailers such as Macy’s and Kohl’s will stabilize as they do a better job at retaining their customers.