Is the Retail Apocalypse – Fact or Fiction?
If you read the headlines, you would believe the Retail Apocalypse is imminent with announcements seemingly each week of new store closures. In fact, earlier this year, we posted a story called Retail Store Closures Pick Up Speed, Says Report based on a report by Fung Global Retail and Technology Tracker. But a new report by IHL Group entitled Debunking the Retail Apocalypse provides an alternative perspective. Their research shows that retailers and restaurants are planning to open 14,248 locations in 2017 compared to 10,168 announced closures. A net increase of more than 4,000 new stores is a very different story than what is captured in the headlines. And the projections for 2018 are even stronger with more than 5,500 openings projected.
The report then breaks down the activity by segment that reveals there are only two segments with negative Net Store Growth: Department Stores and Softgoods, that includes clothing, shoes and jewelry stores. From a real estate perspective, Department Stores have the largest footprints and can be the most challenging to release. And when enough of the department stores anchors leave a center, it frequently becomes a challenge to retain other tenants or attract new ones. In some cases, a regional mall that is no longer viable will be converted to another use, like the recent announcement of Amazon to build a fulfillment center at the site of the Randall Park Mall site in the village of Randall, Ohio.
If you take the number of closures for the 16 brands with the largest decline multiplied by the typical store footprint, these stores will be vacating more than 72 million square feet of space. Sears, Kmart and JC Penny account for 55 million square feet, or 75% of the total.
While the Net Store numbers are important, they don’t necessarily reflect the actual real estate impact. The report included the 16 brands with the largest increases and declines. Another way to review the impact is to take the number of stores and multiplying it by the typical square footage for each brand. The 4,162 new store openings will absorb approximately 34 million square feet of space, with an average store size of 8,339 square feet.
The amount of space that will be vacated totals more than 72 million square feet, or an average store size of 14,805 square feet. However, three department stores, Sears, Kmart and JC Penny, have a disproportionate impact since their typical store size is 100,000 square feet or more. While department stores account for only 500 of the nearly 5,000 store closings (10%), they account for more than 55 million square feet, or 75% of the square footage.
What will happen to the 38 million square feet of space that will be vacated this year? Retailers and restaurants all have specific requirements for potential new locations. Will existing centers or buildings be converted to accommodate these growing brands? Or, will there be more redevelopment of prime locations into new uses?
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