Skip to main content

Why Retail Expert Revised That 80,000-Store-Closure Outlook

The analyst who made headlines last year projecting 80,000 store closures in the next five years now has a different perspective on retail’s brick-and-mortar future.

A lot has happened since UBS retail analyst Michael Lasser’s update last year, prompting the expert to tone down the original doom-and-gloom outlook by tens of thousands of stores.

E-commerce’s stunning growth on the back of the pandemic dipped slightly last year, from 17.9 percent in 2020 to 17.5 percent in 2021. The sudden channel shift drove pessimistic outlooks for stores if consumers were increasingly comfortable shopping online, even if the red-hot digital growth cooled off a bit last year. The first two months of 2022 showed that online retail is again trending up with an 18.8 percent rise, thanks in large part to retail giants like Target making its broad brick-and-mortar base integral to fulfilling the bulk its roughly $20 billion in digital orders. Rival Walmart, meanwhile, runs 31 warehouses solely focused on fulfilling e-commerce transactions.

In fact, Lasser believes one-quarter of all e-commerce purchases will rely on a store for fulfillment, explaining why he now sees 50,000 closures in the years ahead—a considerable pullback from 80,000.

“We now expect retail sales will grow 4 percent until 2026 on the back of higher inflation,” he wrote in a research note.

The analyst believes apparel and accessories stores, consumer electronics outfits and home furnishing locations are “likely to see most shutdowns, with 23.5K store closures cumulatively.” Lasser’s estimates project 13,000 fashion and accessories, 6,000 consumer electronics and 3,000 home furnishings stores closing. Since the first quarter of 2017 fashion shuttered 14,000 stores, while sporting goods retailers cut 3,000.

Related Stories

Productivity at home furnishings stores likely reached its peak now that the work-from-home era is evolving into a hybrid working model for many, he added.

Lasser expects department stores to continue ceding share to other channels while regional chains could suffer as shopping malls shed stores. Off-price retailers are on the rise at the expense of weaker competitors.

“In our view, companies best positioned for the shift to digital fulfillment include brands with a strong DTC [direct-to-consumer] focus coupled with high brand loyalty like Nike and Levi Strauss, as well as omni-channel retailers like American Eagle Outfitters,” he said.

Lasser’s analysis indicates that roughly 7,000 stores would close for every 1 percent increase in online sales. The worst-case scenario would involve 120,000 store shutdowns by 2026 if digital sales jump 26 percent as total retail inches up just 2.5 percent. However, a growth scenario is possible; retail sales rising at 5 percent on a 23 percent digital improvement would create 18,000 new doors. In fact, Lasser said retailers will need to increase store productivity by 4 percent annually just to cover inflation in core costs such as wages and rent.

Retail reversed the trend toward store closings last year, adding 5,100 net new doors versus 4,900 net closures, he pointed out. “We believe abnormally strong demand coupled with significant government stimulus over the past two years likely led to net store additions and prevented some struggling retailers from closing doors,” Lasser said.

Mall-based locations are “likely most at risk” of seeing an onslaught of closures on flagging foot traffic.

Smaller chains will be disproportionately affected by macro pressures driving stores out of business. From 2007 to 2019 chains with fewer than 500 employees closed 40,000 stores, or 5 percent of their base, as larger peers added 17,000, Lasser said. Retail margins will “moderate going forward, following two straight years of significant growth,” which could lead to more closures, he added.

Dicks Sporting Goods, Walmart and Target have the scale needed to use stores to fulfill online orders and stave off widespread closures, he said.