Macy’s announced this year that it was closing 100 — or 14 percent — of its stores. The move was only the latest in a series of seemingly endless store closing announcements by major retailers such as Sears, J.C. Penney, and Sports Authority.
It’s a trend that local government officials should follow closely.
Retail long has been subject to constant churning, with new stores opening as others close. But we’re now in a phase in which some individual chains and stores may continue to do well while the industry as a whole is in decline.
Why the dramatic reductions at major retailers? The Internet has a lot to do with it, with more people shopping online. Online shoppers are much less likely to indulge in impulse buys, reducing overall sales. “E-commerce has fueled a secular change in apparel consumption; undermining total fashion apparel consumption and eroding profitability,” wrote Stifel analyst Richard Jaffe in May.
Not helping matters is that Millennials are less fashion-conscious than previous generations. “The normative behavior of younger customers is not fixated on trend purchasing, at least not in apparel and accessories,” said Mark Cohen, director of retail studies and adjunct professor at the Columbia School of Business, to The Charlotte Observer. “They have to have the latest iPhone, but not the latest sweater.”
The result is that inflation-adjusted sales per square foot in retail outlets are much lower today than just a decade ago, turning many stores that once made a modest profit into money losers. “A lot of brick-and-mortar retailers signed leases 20 years ago for store configurations and square footage that, today, they don’t need,” said Michael Goldberg, chief executive of Zimmerman Advertising, to Ad Age. “What you really need in brick-and-mortar is an accent to what you do with your other channels.”
This suggests that the demand for retail square footage could decline for some time, as chains refuse to renew expiring leases or re-sign only for less square footage.
Is this a public policy issue? Absolutely.
Local government officials, chambers of commerce, and economic development types long have viewed the quality of local retail as a way to measure an area’s status. And that extends to using incentive money to attract desirable retail developments.
Obviously, smaller cities and slow-growing regions are more vulnerable as major retail retreats. The decline of department stores isn’t just a small-city problem.
Indeed, both Charlotte and the Triangle have experienced major retail closings in recent years. Macy’s, for example, shuttered its location in Cary Towne Center earlier this year, before the chain’s latest massive downsizing. Another of the mall’s five anchor tenants, Sears, closed there in 2015. Charlotte’s Eastland Mall, which once had Dillard’s, Belk, Sears, and J.C. Penney, closed entirely in 2010.
Might we see more mall closings in the future? It’s entirely possible — and nothing shouts economic decline like a dead shopping mall.
Unconventional thinking is key as the age of the big box store comes to an end. If you’re still hoping that retail might revitalize your town’s downtown, you’re probably going to be disappointed, regardless of the generosity of incentives.
No, at this point, it’s all about holding on to what you’ve got. In fact, existing retail space might well have to become something else — restaurants, bars, yoga studios, doggie day care, or some other use providing services that today’s consumers are interested in and willing to spend money on.
Does your local zoning allow that? And more to the point, can such repurposing happen quickly and with a minimum of red tape?
If not, then a fair portion of an area’s economic future may close along with the local Kmart.
Michael Lowrey is a contributor to Carolina Journal.