Just How Bad Is the Retail Apocalypse Anyway?
The retail apocalypse—the mass closing of stores and sometimes entire chains that is increasingly turning many shopping centers into wastelands—seems to be accelerating. News stories and sheer numbers indicate that the apocalypse is growing worse this year.
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Some of the most disturbing numbers from the front lines of the retail apocalypse include:
- Target (NYSE: TGT) has decided to sell 1,660 pharmacies and 80 in-store clinics to CVS Health (NYSE: CVS) for $1.9 billion. That’s a sure sign Target is strapped for cash after its Canadian debacle. Under the terms of the deal, CVS will operate the pharmacies and clinics in Target stores. One has to wonder if, like Sears, Target will end up selling assets to keep the doors open.
- Sears Holdings (NYSE: SHLD) CEO Eddie Lampert has decided to stop selling electronics at many of his stores. Instead, the chain will concentrate on appliances, home items and fashion. The announcement came right after a number of deals in which Lampert would sell several hundred stores to mall operators or a REIT. Some of the deals would give the mall owners the right to take some of the space from shrinking Sears stores. A recent lawsuit claims that one of the deals would make Sears insolvent.
- The Gap Inc. (NYSE: GPS) is planning to close 175 of its 675 stores in North America, The New York Times reported. That means one fourth of the iconic chain’s mall outlets will be gone.
- Walgreens (NASDAQ: WBA) is planning to close around 200 stores in the U.S. in an effort to save $500 million.
- Family Dollar and Dollar Tree (NASDAQ: DLTR) are planning to close around 340 stores as part of their merger, The Consumerist reported.
- Dollar Tree will also sell around 330 stores to hedge fund Sycamore Partners, which will operate them as Dollar Express stores, The Wall Street Journal reported. It is not clear if this number includes any of the stores slated for closure.
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- An unknown number of Safeway, Albertsons and Vons supermarket locations will close as a result of Safeway and Albertsons’ merger.
- Safeway and Albertsons have sold 146 locations in Arizona, California, Nevada and Washington State to Washington State-based grocer Haggen.
- Safeway and Vons closures have been reported in several states, including Arizona, California and Colorado. Since Safeway and Albertsons are now part of a privately-held company controlled by the Cerberus Partners hedge fund, it is impossible to tell how many closures are taking place.
- Target announced plans to close 11 locations in Georgia, Indiana, Michigan, Iowa, Kansas, Illinois and Texas on Feb. 1. Most of the locations shuttered were in Michigan and Illinois, where Target faces intense competition from the privately-held Meijer and Kroger.
- JC Penney (NYSE: JCP) is planning to close 40 stores, or 4% of its retail footprint, the Huffington Post reported.
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- McDonald’s (NYSE: MCD) is planning to close around 700 stores in the United States, Japan and China this year, Fortune The closures were announced after the iconic burger chain announced that its sales had fallen by 2.3% and its revenues had fallen by 11%.
- Starbucks (NASDAQ: SBUX) will close all 23 of its La Boulange pastry shops, The Wall Street Journal reported. The coffee shop operator bought La Boulange for $100 million in 2012.
This hardly sounds like a retail recovery; instead, it looks as if income inequality is taking a heavy toll on American retail. One has to wonder how long these closures will continue and what the political fallout will be.
Why the Retail Apocalypse Is Worse Than You Think
The most frightening aspect of the retail apocalypse is that these numbers do not show the complete extent of the carnage. Instead, they only focus on the major retailers and not the smaller retailers dragged down when they shutter a store.
When a shopping center anchor store such as a Safeway supermarket or a Target closes, traffic to neighboring businesses dries up. The Chinese restaurant, the insurance agency, the comic book shop, the gas station, the pet shop and the liquor store lose customers. Some of them shut down because people start driving to another shopping center that still has a supermarket.
When Safeway closes and customers stay away from the shopping center, business might dry up at smaller chains such as Dollar Tree or Walgreens. When those outlets close, people have even less incentive to go there.
When a McDonald’s next to the highway shuts down, drivers have one less incentive to use an off ramp. Some of the traffic to neighboring businesses, such as the diner or the gas station, will dry up.
When a Sears, a Gap or a JC Penney closes in the mall, foot traffic falls. Fewer shoppers means fewer diners at the food court and less business at the smaller merchants. A falling number of shoppers translates into an increasing number of empty storefronts. If the situation gets really bad, the amount of rent coming in no longer covers the mall’s operating costs, which forces the mall operator to lock the doors.
To this toll, we can also add the lost sales and property tax revenues and the lost income to employees at the shuttered stores. That, of course, makes income inequality worse and increases the pain in Middle America. One consequence is the laying off of government employees because of lack of tax revenues.
The social, political and economic consequences of the retail apocalypse will be immense. It will change America in ways we cannot even begin to imagine. One has to wonder how much longer this will continue until it produces some sort of civil unrest.