A number of major chains, including Sears (NASDAQOTH:SHLDQ) and J.C. Penney (NYSE:JCP), have closed a lot of stores in recent years. That's left malls with large anchor spots open that can't easily be filled in the traditional way. That trend has also hit smaller mall retailers including Gap (NYSE:GPS), which has been closing stores, and Payless, which is shuttering all its stores. This trend isn't limited to these chains and is having a major impact on malls.
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This video was recorded on June 18, 2019.
Shannon Jones: Another thing that I think is really interesting, you had a retail boom for a lot of these malls in the 90s, 2000s. Then the recession hit. You still have a lot of stores that still haven't fully recovered. A lot of your luxury, high-end retail stores have taken a big hit. But it also gave rise to a lot of these fast fashion stores. I'm talking about your H&M, your Zara. Personally, not a huge fan of fast fashion stores. But to each his own. But it's just interesting to see how some stores have been able to adapt, fill in the gap; and then others, like you mentioned, haven't. What are some of the biggest losers right now when it comes to this retail apocalypse hitting the malls?
Dan Kline: Well, Shannon as you know, I am all about the fashion! [laughs]
Jones: You're the most fashionable guy I know! I learn all that I know from Dan Kline.
Kline: [laughs] So, the losers are stores that didn't look at the consumer base. Look, I'm not a fan of H&M either. I find it disposable clothing. On the other hand, I sort of like Uniqlo, a Japanese company that does similarly priced things. They're doing basics, traditionally fashionable items. It's more foundation things for your wardrobe -- a black T-shirt, a sweatshirt that you could wear multiple times, that kind of stuff. Companies that win are the ones that are looking at, what do consumers want, how do I give it to them?
Let's take a mall loser. The Gap has been closing stores. The reason The Gap has been closing stores is their merchandise hasn't connected with customers. And as a company, The Gap is hamstrung by the fact that they also own Old Navy. Old Navy is, call it inexpensive, fast fashion. That takes that end of the market, so The Gap can't go into that. So, with The Gap, you have untrendy $60 jeans. You don't have trendy $100 jeans, you don't have fast fashion $20 jeans. You have a product that nobody wants. The Gap has always been a cyclical company, but it's a pretty major downtime now, where that chain may not survive.
Then you have a company like Payless. Payless is either closed or closing all of its stores. That's because you can get shoes a lot of places online. Could Payless have doubled down on the fact that you can't try on shoes on Amazon? I've been buying a different beat shoes and I think it's taken me about six pairs to get the ones I want, and returns are not all that fun on Amazon. So, if I could have gone into a Payless, and they had the products I wanted, I might have bought them. But all Payless had was the promise of inexpensive, and inexpensive is something the internet can deliver over and over again.
Then you've got companies like Charlotte Russe, which closed all it stores because it was a fashion store but it didn't really have an audience. It didn't really have a brand, it didn't do anything to attract people. Gymboree, again. Clothing for little kids is a commodity. You can buy it online, you can buy it anywhere. Parents know that it's going to have a very limited lifespan, so you might buy one or two dressy, expensive outfits, but for the most part, it's a Target/ Walmart pricing point, and Gymboree just didn't answer that.
Then you have companies like Jared Jewelers, which is owned by Signet, which owns all of those low-end jewelry brands. Again, it's something that, I could go to the mall and buy jewelry, but there's so many choices and they haven't given me a reason. PANDORA has done well because they have the time-limited things and the Disney partnerships. You'll go to the mall and you'll see a huge line at PANDORA because they've given customers a reason to be there with an exclusive or a limited-time offer or something that they only have so many of. The stores that are failing are failing, again, because they're not managed well.
Jones: So true. We've talked a lot about JCPenney on the show before. They're struggling. It's still amazing to me that they continue to, I guess, put along. I will say, my first job in high school was working at the JCPenney shoe store. Learned a lot about business. Learned a lot about stuffing size nine shoes into size eight Rockports. I'm not saying that I contributed to their decline, but I think I might be a part of that too. But JCPenney is one of those stories that, like a Sears, like a Kmart, I just wonder how much longer can they survive?
Kline: Not much longer. JCPenney was a company, for a long time I talked about how they were making all the right moves. For example, when Toys R Us closed, JCPenney went into toys. When Sears started closing locations, JCPenney went into appliances. And the problem is, I said those things "Oh, they're making the right move," without going into a JCPenney and seeing how they execute toys. Well, the toy section at JCPenney last Christmas was literally a bunch of toys thrown into the middle of the floor. It wasn't merchandised well. And I'm only speaking from visits to two, maybe three JCPenney-s. Maybe there were a couple that did it well. But the ones I saw, it was very poorly done. It wasn't the mix of toys I would have bought, and I spent two years running a very successful toy store, so I can speak to that a little bit. And I'm a JCPenney customer. In fact, the shirt I'm wearing is from JCPenney.
Jones: I knew it, Dan!
Kline: It's one of three places I buy a similar shirt from. I buy it from Amazon, I buy it from Kohl's. But half the time I go to JCPenney , they either don't have the shirt in the size I want, or it's not where it was last time, or the merchandising is too convoluted. It's a very difficult store to shop at. My son and I will go in, and he'll need, say, a bathing suit. And the selection in his size will be poor, but they'll have three racks of novelty suits -- the ones with the dollar bills or the American flag printed on them. You can tell, a lot of their merchandise is just to fill space because they don't have the money to have everything they need. That is an absolute red flag, when a company is stretching out its merchandise and filling its store with stuff that is either not going to sell or is not going to be high-margin or even decent margin. There are a lot of major red flags that JCPenney is -- and you can look at the balance sheet -- running out of money.
Jones: Dan Kline, propping up JCPenney , one black polo shirt at a time.