Attention Shoppers, The Store Is Now Closed

While last year’s number might seem large, some industry observers think things will get twice as bad this year, with more than eight thousand store closures anticipated in 2017.¹

Not only are stores closing at a frenzied pace, but the number of full-fledged business bankruptcies has also been on the rise. Thus far in 2017 more than 20 retail companies have filed for bankruptcy protection.² Among them are well-known brands including Payless Shoes, BCBG Max Azria, and The Limited. These join other mall stalwarts like Aeropostale and American Apparel that entered bankruptcy last year.

To be sure, there are likely even more casualties on the way. Unfortunately, these “casualties” aren’t just the physical stores themselves; according to The Economist, between January and May of 2017, the retail industry has shed a whopping 50,000 jobs.¹

With these facts in mind, it probably comes as no surprise that the current massacre in American shopping has earned the unenviable moniker “The Retail Apocalypse”.

Why is there so much disruption in bricks-and-mortar retail? The most common answer to that question is simply: “Amazon”. That company’s success in the world of e-commerce is, by most measures, remarkable. And to most observers, that success reflects the shift in habits of American consumers to spend more of their money online, at the expense of traditional mall-based retailers. Why bother trudging to the mall when you can order what you want from your mobile phone?

In addition, American shoppers are choosing to spend more of their disposable income on “experiences” like dining out rather than “things” like clothes. Consider, for example, that 2015 marked the first time in history that U.S. consumers spent more on food at restaurants and bars than they did at grocery stores.³

Another issue for retailers is simply that there are too many malls in America. That’s the contention of Sandeep Mathrani, the CEO of GGP, the second largest retail real estate owner in the U.S. He estimates that in order to match the new, lower demand for bricks-and-mortar stores, 30% of all American malls will need to close their doors for good.¹

In its 2016 annual report, GGP provided some compelling facts behind this argument that there is just too much supply of shopping space in America.

The U.S. has close to 8 billion square feet of retail, or 24 square feet per person… Other developed countries have far less retail real estate per capita, such as Canada with 16 square feet per person, Australia with 11, the U.K. with 5, France with 4, China with 3 and Germany with only 2 square feet of retail per person. Our country is over-retailed; or, as I like to say, “under-demolished.”

Looking at these numbers, it’s difficult to rationalize why an American shopper might require five times as many shopping malls as a British shopper. If indeed they don’t, expect more retailers to join the ranks of the walking dead in America’s retail apocalypse.