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No Relief for Retail Landlords as Store Closures Ramp Up Once Again

We thought you would like to be kept informed on the thousands of store closures that are happening around the U.S. and what lies ahead.

Photo Courtesy of NREI.

It’s only mid-March and already a slew of prominent retailers have announced thousands of store closures around the U.S. The pace of closings isn’t expected to slow anytime soon. So far this year, 10 national retail chains have filed bankruptcy.

Year-to-date U.S. retailers have already announced 4,810 store closures, reported market research firm Coresight Research. Last year, Coresight tracked 5,524 store closures, which was down 32 percent from a record high of 8,139 shuttered stores in 2017.

The number of store closure announcements so far in 2019 is up 23 percent vs. this time last year.

Accelerated e-commerce growth, rising interesting rates and flat and falling store-based sales as factors impacting the sector.

Four chains announced more than 465 store closings: Gap Inc., J.C. Penney, Victoria’s Secret, and Foot Locker.

Gap Inc. said it would shutter 230 stores over two years, following a 7 percent drop in same-store sales in the fourth quarter of 2018. It will split into two publicly-traded companies by spinning off its Old Navy brand and create a yet-to-be-named new company to house its other brands. Gap Inc. executives say there will be a “healthier channel mix after the restructuring with nearly 40 percent of sales coming from online and the remainder split between the specialty and value channels.”

J.C. Penney announces more closures following a tough holiday season, announcing it will close another 18 department stores. The retailer also got out of the major appliances business.

Same-store sales for the fourth quarter fell 6 percent from a year earlier. The retailer’s stock dropped below $1 for the first time ever in late December. J.C. Penney was trying to go after the Sears customer following that retailer’s many store closures, however, that strategy wasn’t working.

Victoria’s Secret (L Brands Inc.) announced it will close 53 Victoria’s Secret locations in North America this year following a 3 percent decline in same-store sales over the holidays.

There is also a push for the company to split off its profitable and growing Bath & Body Works brand from the flailing Victoria’s Secret chain.

Foot Locker is seeing growth, yet closing stores, announcing it will close roughly 165 stores across the country. Same-store sales for stores that have been open for more than a year jumped 9.7 percent in the fourth quarter. They also plan to spend about $175 million to improve its store fleet, by adding 80 new stores, further expanding into Asia and undertaking 190 remodels of existing stores.

While retailers struggle, retail isn’t dying

There was a 4.6 percent increase in retail sales in the U.S. in 2018, which totaled $3.68 trillion.

Historically, many retailers were signing 10-year-plus leases, but a massive change in the way people shop occurred. A new generation of consumers are buying products online or in-app.

Malls made it so enticing to renegotiate terms that it didn’t pay for the retailer to move out. They signed sweet deals with much shorter-term leases.

What lies ahead?

Many retailers could continue to struggle, and more will face difficulty if economic growth slows.

David Simon, CEO of Simon Property Group-the largest mall owner in the U.S.-said that there are retail chains that they are nervous about, and more bankruptcies will occur for retailers with high debt loads.

Simon also said he’s confident in plans to bring non-traditional uses to malls, including housing, gyms and hotels to backfill vacancies left behind by J.C. Penney, Sears and other retailers.

2019 will likely be another challenging year for apparel retailers, some department stores and specialty merchandise retailers, as the sector works to address e-commerce competitors and shifting consumer behavior.

S&P Global Ratings reports that while poorly positioned landlords will struggle, the well-positioned retail REITs—when faced with the prospect of taking back space from weak tenants—will be able to reposition properties successfully, partly because they have the financial resources to do so.

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