Here we go again, yet another retail revolution. By that I
mean at the end of this revolution some will be gone, many will be smaller, and
a few will be stronger and larger.
Nothing new here. We go through this cycle
about every 15 years during some sort of national economic setback. Not a lot
to worry over for the consumer, we have too many stores anyway, and when this
shake out is over, we will still have enough outlets to satisfy our conspicuous
consumer appetite, and enough that there will still be competition.
I think there will be between 3000 and 5000 stores closed
this year (not including local independents). In most cases it will be a
reduction of doors and in a few cases, such as Comp USA and Bombay Company, the
business will go away altogether.
The majority of the closings will most likely
be shopping center and mall-based apparel, shoe and jewelry stores. Most
vulnerable are the moderate priced stores that are located in what we would call
B or C level shopping centers.
These stores depend on the center to drive
traffic and then hopefully benefit from that traffic. They do not usually have
a great strategic position from either a merchandising or brand perspective.
These stores often rely on low sales, low rent and high margins to make their
way, and the slightest blip in any of these factors will cause them major
problems. This year these stores on the bubble can depend on at least two of out
of three factors going in the wrong direction (sales and margin).
Want to know who I think will close and who will have a
major reduction in doors, sorry, for that I get paid. But here is a tip. Store
X is on about 24 quarters of poor sales and profits, but is still around. Why?
Examine their balance sheet and understand that they still have cash and access
to cash.
Now take a look at Store Y (a one time high profile category killer)
and see that they also have had about 24 bad quarters, and look at their balance
sheet.
No need to look too far; their problems are not coming, they are here.
Interestingly both have strong brands and both can be fixed. However this is
not true for the death spiral scenario of many, weak balance sheet, mediocre
brands and often management is in denial or without the imagination to react.
So over the next few years when you walk the mall or strip
center and you see an empty store front, you may say something like this.
“Oh, I remember that store, I think we were in
there once, can’t remember if we bought anything, now what was its name?”
My point exactly.
