New data suggests a slowdown in store closures may be reversing course while August’s stronger-than-expected retail sales caught analysts off guard and experts formed a consensus outlook for holiday.
Store-closing slowdown subsides?
UBS’ second-quarter data suggests brick-and-mortar closures might be picking again after cooling off in the wake of last year’s 11,000-store culling. Just nine retailers have filed for Chapter 11 bankruptcies so far this year, with Christopher & Banks closing all 449 stores and selling the digital assets to a Hilco affiliate in perhaps the biggest collapse.
In the first six months of the year, retailers seemed to focus on opening rather than closing stores, which they routinely take under review. Executives from Macy’s, Express and Victoria’s Secret have all voiced plans to pursue locations away from the troubled mall environment.
Many chains’ store-closing strategies are fully underway—or nearing completion. Express shuttered nearly 75 locations last year, with another 25 on the chopping block for 2022, bringing the total count to 100. Macy’s is believed to be in the process of closing some of the 125 stores it slated for closure last year. Many of the 250 stores Victoria’s Secret said last year it would exit have already gone dark.
But “major store closures continue,” UBS retail analyst Jay Sole wrote in a report published this week. U.S. softlines stores shrank 7.2 percent year-over-year during the second quarter of 2021, per the investment bank’s data.
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“The surprise from UBS Evidence Lab’s latest data is major US store closures continue, despite progress made reopening the country” Sole wrote. “The Softlines industry experienced 811 net store closures in 2Q21,” which typically isn’t a “big store closure quarter.”
The store count shrank 0.9 percent quarter-over-quarter, a rate Sole considers “significant” as it’s triple the “average pre-pandemic Q2 net store closure rate.” Data suggests that “brick and mortar retailers remain under significant pressure,” he warned.
Sole expects retailers to continue right-sizing their fleets over the long haul, especially as digital commerce continues to gain market share.
As of June, American retail counts 85,121 stores in the softlines sector, down from a 2013 peak of 112,284, UBS found. Men’s wear and women’s wear stores lead the declines, with ailing department stores, children’s apparel stores and footwear retailers also driving closures.
Taking a bearish stance on brick-and-mortar retail, Sole believe some retailers stand to gain from the closures, which could create headwinds for those equipped to take advantage. Off-price players in particular have led retail in opening new doors, he noted.
Last year, UBS retail analysts made waves when they projected that 100,000 stores could be wiped off the retail map by 2025, with apparel hit hardest. Retail analyst Michael Lasser cited online sales, which he said could hit 25 percent by 2025 from 19 percent in 2019, as a dominating factor behind the outlook. For every 100-basis-point increase in e-commerce gains, 10,000 stores will be driven out of business, Lasser calculated, stating in April this year that malls will fuel these closures. His latest estimate pegs the U.S. store count at 797,000 stores in 2026, a notable contraction from 878,000 last year.
August retail sales
Meanwhile, industry trackers have faced difficulty gauging the U.S. consumer’s resiliency.
The U.S. Census Bureau on Thursday reported a 0.7 percent bump in August’s retail sales to $618.7 billion on a seasonally adjusted basis from July. The increase comes in at 15.1 percent year-over-year and a marked a departure from July’s 1.8 percent decline.
Apparel and accessories store sales jumped 38.8 percent to $25.8 billion from year-ago figures, while department store sales rose 29 percent to $12.39 billion. Sales at non-store retailers—or e-commerce retailers—rose 8 percent to $88.38 billion. Furniture and home furnishings stores saw a sales gain of 16 percent to $12.5 billion. Retail trade sales were up 0.8 percent from July 2021, and up 13.1 percent from a year ago. All sales figures are reported on a seasonally adjusted basis.
Consumer demand outweighed the pandemic constraints and supply-chain disruptions, the National Retail Federation said of the August sales results.
“Retail sales in August overcame unusual twists and turns that have affected shopping behavior both in terms of the timing and composition of sales,” Jack Kleinhenz, NRF chief economist, said. “The consumer remains rock solid despite the trifecta of macroeconomic headwinds we’ve seen this year, including tapering off of government stimulus, elevated Covid-19 infections and ongoing supply chain challenges in the form of shortages of labor and goods.”
Well Fargo Securities economists said the pickup in sales came as a surprise, given the rise in Covid cases, deteriorating consumer confidence, and what appeared to be a shift in spending toward services from goods. But with more children returning to the classroom this fall and the $16 billion child tax credit issued starting in July, economists believe retailers benefited from the back-to-school “shopping spree that traditionally closes the summer.”
Despite the good news, the Wells Fargo team suggests that back-to-school sales and instances in which consumers picked store inventory clean could be one-off factors. Though the economists said the August retail sales report could nudge their third quarter PCE (personal consumption expenditures) growth forecast higher, “we do not see this as the start of another surge in goods spending,” they warned.
Hanging hopes on holiday
While a surge may not be in the works, retailers could still get another much-needed boost in the form of holiday sales. Bain & Co. on Thursday projected 7 percent growth to $800 billion in this year’s holiday sales for the second-highest rate in more than 20 years. This figure echoes the outlook Deloitte and Mastercard came out with this week, with the former seeing 7 to 9 percent growth and the latter expecting 7.4 percent.
While furniture and home furnishings could perform well, Bain expects apparel and accessories—traditional gift-giving favorites—to deliver “robust momentum” in the season ahead. Whether retail can deliver is another story—supply chain challenges will impact product availability, with Nike already citing problems transporting goods as a factor behind its Billie Eilish-led vegan sneaker launch delay. That’s on top of the athletic giant’s 160-million-pair problem in Vietnam, where Covid has throttled apparel and footwear manufacturing in the production powerhouse.
What’s more, retailers are already jittery over the available labor supply and the specter of another Covid-19 wave. But Bain cautioned that consumers could swing more of their spending toward travel, restaurants and services to retail spending’s detriment.
“The retailers that come out ahead this holiday season will proactively plan for supply chain headwinds, keeping marketing nimble and finding new opportunities to delight customers both online and in stores,” said Darrel Rigby, a partner in Bain & Company’s Retail practice.