The U.S. retail industry suffered a record number of store closings last year. The trend shows no sign of abating in 2020, as Pier 1 Imports (OTC:PIRR.Q) recently announced it would be closing as many as 450 stores due to falling sales and profits.
Rumors of an impending bankruptcy filing continue to swirl around the home furnishings retailer. It's just one of a growing number of signs that the retail apocalypse, which has already laid waste to huge swaths of the industry, is not yet done wreaking havoc.
Winter is coming for retail
Pier 1 isn't alone in feeling the effects that e-commerce has had on retail. Macy's (NYSE:M) also just announced it would be closing a slew of stores -- 28 Macy's stores and one Bloomingdale's -- though its performance during the holiday shopping season was better than many expected.
Not that Macy's results were actually good, as comparable-store sales fell 0.6% over the November and December holiday sales period. Still, that was better than the 3.5% decline it reported for the third quarter. Because the results could have been so much worse, Macy's stock actually rose on the news.
We'll likely continue to see scenarios like this play out over the next 12 months. B. Riley FBR analyst Scott Carpenter argued in late 2019 that the retail industry remains over-stored and closures will be a mainstay of the headlines for another two years.
Last year, there were 9,302 announced store closings, according to Coresight Research data: a 59% jump over 2018 and the most since it began tracking closures in 2012.
Consumers left and aren't returning
The malaise has hit some retailers harder than others. Pier 1, for example, has suffered through nine consecutive quarters of falling sales, as consumer preferences for buying home goods have shifted online to Amazon.com, Wayfair, and even Walmart. Whereas Pier 1's stores once offered a unique shopping experience, similar home decor is now available anywhere online.
Bed Bath & Beyond (NASDAQ:BBBY) has had a similar experience, spiraling downward as consumers have migrated to e-commerce retailers and mass merchandisers for home furnishings and essentials. Bed Bath & Beyond lured Mark Tritton away from Target last October to be its new CEO. He is charged with reversing the retailer's course, but it's a tall order that won't be so easily achieved.
Bed Bath & Beyond also realizes that downsizing is going to be essential if it wants to survive. While it just sold half of its owned real estate to a private equity firm (which is leasing those properties back to the company under long-term rental agreements), Bed Bath & Beyond has also said that it will close dozens of stores over the coming year. It may also sell off divisions that are no longer part of its core retail mission.
Don't discount every retailer
Yet other retailers are thriving in this climate, opening thousands of new locations. Dollar General is the most prominent retailer opening more stores, but Gap's Old Navy chain, Five Below, and Dollar Tree have announced continuous expansion plans.
One thing all of those retailers have in common is that they are discount chains that have seemingly found the right equation to grow. Customers who were forced to go down-market during the recession a decade ago never really scaled back up afterward. Saving money was actually kind of fun. As discount retailers expanded their merchandise offerings, consumers didn't feel the need to return to the businesses they previously shopped.
The end is not in sight
While store closings help rein in a retailer's costs and may even allow it to reduce debt, they also reduce revenue and make the future more difficult. Without the footprint to borrow again, even if stores are able to right themselves (though most never seem to really achieve that), growth becomes more difficult.
Pier 1 Imports' store closing announcement wasn't really a surprise in the context of its financial performance and what has been occurring in the industry. However, it also means that the pain retail felt last year is going to linger, and more borderline-solvent retailers are likely to go under soon.