The US retail sector may be post peak, and with the changing demographics and online sales competition, the once popular shopping mall and Department Store may become much like the once dominant species of our pale blue dot. Like the dinosaurs, the department store model looks like it will soon be ancient history. Let’s talk, as there is more evidence than not to back up this prediction.
The Kansas City Business Journal had a piece titled: “Study: Department stores must prune mall space to bloom again,” published on April 25, 2016 which stated: “A real estate research firm says department stores must close hundreds of sites – about 20 percent of all anchor space – in U.S. malls to regain their productivity of a decade ago, The Wall Street Journal reports. For example, Sears Holdings Corp. should shutter 300 stores, or 43 percent of its total, to achieve the sales per square foot it had in 2006, according to the study by Green Street Advisors. This is so even though Sears and other retailers have closed hundreds of stores in recent years with the rise of online sales and discounters.
Meanwhile, The Louisville Business Journal had a telling article recently titled: “Major retailer plans to close all of its Louisville-area stores except one,” published on April 22, 2016, which stated: “Kmart is planning to close all but one of its stores in the Louisville area this summer. The retail chain’s parent company, Sears Holding Corp., announced Thursday that a total of 78 Kmart and Sears stores will be closing, and that number includes four Louisville-area Kmart stores, WDRB TV reports.”
And, what exactly was that Wall Street Journal piece saying in addition to all this? Well, read it for yourself; “Glut Plagues Department Stores,” by Suzanne Kapner – and the recommendation from the research firm that in the US there needs to be at least the closure of 800 anchor tenant department stores for profitability to stabilize, that would be about one-fifth of all major department stores. Can you say; Ouch!? For the Retail Sector, I think this is what all retail stock fund managers are collectively saying about now, and one would have to ask; why? Why is this happening?
Well, consider the exuberant growth over the years, and the increase in online sales, expansion of Wal-Mart superstores and the spendable income of Americans declining – due to college tuition costs, health insurance, and the increased costs of things once not heard of, but now necessities of modern life such as: smart phones, cable TV, etc. Wages and Salaries on average have been stagnant and alongside even moderate to nil inflation flat in their growth. The world is changing and the retail world must adapt or die – there is no longer a choice in the matter. Please think on this.