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Is Everything You Know About the Retail Apocalypse Wrong?

By Daniel B. Kline - Updated Sep 20, 2017 at 4:30PM

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Well-known chains are closing stores, but that's not the whole story.

Retail stores are closing. You only have to walk by most malls or shopping plazas to see the shuttered Macy's (NYSE: M) and Sears Holdings' (NASDAQ: SHLD) locations. Venture inside the mall, and you'll be greeted by empty storefronts that once housed Radio Shack, Rue 21, The Limited, Wet Seal, BCBG Max Azria, or any of the many other chains that have closed locations or gone out of business entirely.

Sometimes, though, what appears to be true, isn't. Brick-and-mortar retail is most certainly changing, and some chains will not survive. But the idea that the rise of the internet has created a "retail apocalypse" that will greatly shrink the number of stores in the United States simply does not match what's actually happening.

A Sears store

Sears has been one of the chains closing stores. Image source: Sears.

What is happening?

In 2017, U.S. retailers have opened, or plan to open, 1,326 more locations than they will be closing, according to IHL Group's Debunking the Retail Apocalypse report, which was sponsored by several companies. When you add in restaurants, the increase jumps to 4,080 new openings in 2017 with another 5,050 planned in 2018. Or, to look at it another way, between chain stores and restaurants, 10,123 will close in 2017, but 14,239 will open.

To compile the study, IHL looked at over 1,800 retailers and restaurant chains with more than 50 U.S. locations across 10 retail vertical segments. It found that for every chain with a net closing of stores, 2.7 brick-and-mortar retailers would be posting a net gain in locations. The research firm also noted that if you add in retail chains smaller than 50 locations (including restaurants) the number of new openings in 2017 climbs to over 10,000.

"The negative narrative that has been out there about the death of retail is patently false," said IHL President Greg Buzek in a press release. "The so-called 'retail apocalypse' makes for a great headline, but it's simply not true."

The changing face of retail

The retail apocalypse narrative has come about because of the high-profile chains that are closing locations. Sears Holdings and Macy's are both iconic retailers as is Radio Shack, with many of the failing mall brands being well-known, highly visible companies.

In fact, IHL found that 16 chains accounted for almost 50% of all store closings. Just five companies -- Radio Shack, Payless, Rue21, Ascena Retail (Dress Barn, Justice, Loft, etc.), and Sears Holdings -- accounted for 28.1% of the total stores being shut down. The report showed that there are major changes taking place in the physical retail space:

  • 42% of retailers have added stores while only 15% have gotten smaller.
  • Specialty apparel retailers are seeing the largest number of closings, with a net loss of 3,137 stores.

"Without question, retail is undergoing some fundamental changes. The days of 'build it and they will come' are over," said Buzek. "However, retailers that are focusing on the customer experience, investing in better training of associates and integrating IT systems across channels will continue to succeed."

What's next for retail?

To succeed, brick-and-mortar chains need to give people a reason to leave their homes. The success of discount chains and warehouse clubs has shown that price is important, but so is the sense of not quite knowing what you may find when you enter a store like Costco or Ollie's. In addition, chains including Best Buy and J.C. Penney have shown that adding store-within-a-store concepts, and offering services as well as goods can drive sales.

It's not a retail apocalypse, but how Americans shop is changing. The ease of online shopping means physical retailers need to be about more than the ability to put goods immediately into consumers' hands. That does not mean that brick-and-mortar retail is dead or dying, it's simply shaking out the winners and losers.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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