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Weighing the Opportunities and Obstacles Left in Store Closures’ Wake

If there were a No. 1 story from retail last year, it was the number of doors that closed. Whether through bankruptcy or right sizing, store chains shrank at a rate that unnerved most. And while the pace has slowed, the apparel industry is still feeling the effects—in some cases positive, in other punitive and still others puzzling.

In the latest round of investor calls, retail executives addressed the ways in which retail’s turmoil has impacted their supply and demand.

For PVH, the bankruptcy and liquidation of The Bon-Ton Stores is expected to be felt for some time. The company announced that though earnings are expected to be up for Calvin Klein for the full year, the brand’s operating margin will be affected due to the chain’s demise.

“Licensing is a 100 percent gross margin business with no product cost. So, when you lose a nice stream like that, and we’re really planning it for zero this year, that has a minor hit on the Calvin Klein operating margins for ‘18, which I think if you took that out of it, you’d be seeing growth on those operating margins,” explained PVH chairman and CEO Manny Chirico.

The company’s Heritage division, which is comprised of brands like Arrow, Van Heusen and Warner’s, will also be negatively impacted by Bon-Ton’s closure, he said.

While J.C. Penney hasn’t had any issues related to that chain’s closures, it is capitalizing on the worsening fate of another.

“We have 97 malls that we share with Bon-Tons. As they liquidate, we’ve seen no material impact because those stores had very low inventory levels before the liquidation started,” explained outgoing CEO Marvin Ellison during JCP’s Q1 earnings call.

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On the other hand, Ellison said the overlap with Sears is much greater, at one time totaling 350 malls. In the last three years, Ellison said 100 Sears doors have closed in properties where both department stores had a presence. While a neighbor anchor shuttering is often detrimental in the form of dampened foot traffic and escalating price wars during liquidation sales, that hasn’t been JCP’s experience with Sears.

“The net effect is positive, and it was positive before we started strategically adding categories like appliances and mattresses and workwear so as we’ve introduced those categories when we see a Sears close, it’s a greater significant benefit to our business in the end process,” Ellison said.

Off-price too could be benefitting from the overall retail contraction, though Ross president and COO Michael O’Sullivan stopped short of attributing the amount of merchandise currently available to shuttered doors. “In terms of the store closures, it’s hard to tell what contribution that’s having to availability. Availability is driven by a number of a number of things…I think the struggles that the rest of the retail industry is having certainly is helping to drive availability,” he said.

The TJX team can’t account for what Ernie Herrman characterized as a plentiful amount of goods on offer either. Speaking an earnings conference call, he said there’s “an unusual degree of supply across all tiers of vendors and goods quality and brand level.”

His experience directly contradicts the litany of brands that have claimed to be cutting back on production. “It’s been the complete opposite,” Herrman said. Rather than struggling to find goods, which would be expected if fewer goods were being produced, his team has been challenged by the task of selectively wading through a sea of options. “It’s a little puzzling,” he said.