There was a time not that long ago when the idea that malls had killed Main Street was an important business narrative. Now it's malls that are withering under the pressure of having to face off with online competition. Not every chain has suffered, but a trip to the mall in 2018 might look very different than one right now.
And while we're not yet to the point where we have to wonder if the concept of the mall still makes sense, in some markets, giant shopping centers will close due to lack of tenants. Even those malls that pull through will have a lot of space to fill.
Image source: Getty Images.
It's a difficult transition made even harder by the fact that nobody knows where the bottom is for physical retailers. Some chains like The Limited and Sports Authority have already gone to the big mall in the sky, while major anchor chains Sears (SHLD +0.00%) and Macy's (M 2.80%) have laid out plans to close significant numbers of stores.
Expect a number of further complete closures in 2017, and even more chains to close underperforming locations. It's going to get worse before it gets better and here's what we know so far.
Aeropostale clings to life
After filing for Chapter 11 bankruptcy protection in May, Aeropostale received $160 million in debtor-in-possession financing provided by Crystal Financial LLC, which, "combined with operating cash flow, will allow Aéropostale (AROPQ +0.00%) to meet its go-forward financial commitments," according to a press release.
The company has already closed 113 locations in the United States, as well as all 41 stores in Canada. That is likely only the tip of the iceberg for the chain which has its survival very much in doubt.
PacSun emerges from bankruptcy protection
Another clothing retailer, PacSun, came out of bankruptcy protection in September. The chain closed 10-20 stores this go-round (after previously shuttering over 100), but it may be in a decent position going forward.
The company was able to cut its debt, close its weakest stores, and force its beleaguered landlords to lower its rent in many cases. "That's every distressed retailer's dream," Poonam Goyal, a retail analyst with Bloomberg Intelligence, said in a published report.
Image source: Getty Images.
Sears and K-mart struggle
Sears and K-mart, both owned by Sears Holdings, have been on a slow, sad death march, closing stores steadily in the hopes that somehow less will eventually equal more. In January, plans were made public to close another 150 stores -- 108 K-mart locations and 42 Sears stores.
Sears acknowledged in a press release that the soon-to-be-shuttered 150 locations "generated about $1.2 billion in sales over the past 12 months," but the end result of operations was "an Adjusted EBITDA loss of approximately $60 million over that same period."
That's a relatively small loss that you might think the company could turn around. Things, however, have become so dire for Sears Holdings that selling off inventory and store fixtures to generate cash makes more sense than trying to fix stores that are relatively close to break-even.
Macy's getting smaller
While the overall picture for Macy's has not been as bleak, the company has been steadily closing stores and has plans for more shutdowns in 2017. The company announced plans to close 100 stores in August with 32 of those locations shuttering in 2016 and another 68 set for 2017.
In theory, these changes are designed to help the company focus its resources away from money-losing or marginal stores into various digital ventures. Of course, there has been no concrete evidence that having less of a physical presence will translate into more online/app sales.
Even J.C. Penney may shrink
After being near death just a few years ago, J.C. Penney (JCP +0.00%) reversed its fortunes and has been a surprising success story. But being not dead and being healthy are two different things and even the resurgent retailer may close some locations in 2017.
"We're going through an analysis now," CEO Marvin Ellison said, according to The Dallas Morning News. "We have certain locations that we readily admit we have to downsize."
In 2016 J.C. Penney closed seven stores, mostly in smaller markets. Its 2017 moves are not likely to be as dramatic as its struggling retail rivals, but its weakness is another bad sign for mall operators.
