Analysts say tens of thousands of stores could close across the US.
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More than 50,000 outlets could close permanently over the next five years, according to UBS analysts. The closure will reduce the current US store count of about 940,000 by about 5% by the end of 2027, analysts said.
A slowdown in consumer spending and tightening credit conditions, combined with rising e-commerce penetration, is expected to dramatically accelerate store closures, with family-owned stores most at risk given their lack of capital, according to a research note from a team led by UBS Equity Research analyst Michael Lasser. .
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Analysts predict that e-commerce penetration will rise to 26% from 20% by 2027, with 25% of e-commerce sales coming from stores, up from 15%. Analysts also predict that retail sales will continue to grow at 4% per annum, which they say is in line with the long-term trend.
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However, UBS warned that a prolonged recession could slow sales growth and result in 70,000 to 90,000 store closures.
The number of store closures “already rose significantly” in 2023 from last year as big players like Bed Bath & Beyond, Foot Locker and the bankrupt Tuesday Morning reduced their footprints.
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Over the past year, Bed Bath & Beyond has initiated a redevelopment plan that included the closure of hundreds of stores. Foot Locker announced last month that it plans to close more than 400 underperforming mall stores by 2026 as it shifts its focus to new concept stores. The household goods discounter filed for Chapter 11 in February on Tuesday morning.
CEO Doug Wood of Oxford Industries division Tommy Bahama told FOX Business he was not surprised by the UBS report, saying it was “a natural part of the retail cycle.”
You can think of it like an apple tree, according to Wood.
“You get your best apples when you prune a tree,” he said. “Here’s how I look at it… you’re going to cut any inefficient stores that don’t meet consumer or market demands but help the market as a whole.”
UBS analysts said this store rationalization could benefit “big, well-capitalized players” such as Target, Walmart, Lowe’s, Home Depot and Costco.
It also aims to help “those with unique differences,” including Floor & Decor Holdings, Academy Sports and Outdoors and National Vision Holdings, which analysts say “could grab a disproportionate share of the market,” analysts said.
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Wood says his company, which is 30 years old and has 160 stores across the country, is also in good shape.
For small players it is much more difficult.
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Smaller chains are most at risk of closure, UBS analysts said, as they “generally have less access to the capital needed to invest in developing a robust omnichannel offering.”
Wood says that moving from a small player to a mid-sized or large player is costly, given the high costs of opening stores and staff, as well as running an e-commerce platform.
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“It’s not just about rent, building costs and labor… You have to set up the infrastructure so that it can actually drive distribution,” Wood said.
He noted that the smaller player is indeed being “hindered” because “they don’t have access … to all the systems and data that the bigger player has.”
To highlight this, smaller chains have lost 40,000 stores over the past decade, while larger chains with more than 500 employees have added 17,000, according to UBS.