Retail Closures Accelerate In The United States As E-commerce Grows

Many retail chains in the U.S. continue to shut down with some of the latest stores being Payless Inc and Ralph Lauren. Rue21 Inc, a retailer that focuses on teenage apparel, is also said to be headed for bankruptcy. The store closures has left shopping malls with a lot of empty space.

To make matters worse, this could just be the start which means that over 10% of the retail space in the U.S. may require to be converted for alternative use, renegotiated so that the renters pay lower rates or shut down entirely. With the combined retail space in the U.S. being approximately one billion square feet, this translates to about 100 billion square feet.

Retail job losses

Besides causing a drop in mall revenues, the closure of stores is also contributing to job losses. The latest report from the Labor Department shows that approximately 30,000 workers were laid off in the retail sector in the month of March. Around the same number was laid off earlier in February and both months had the worst showing for the retail sector since 2009.

Richard Hayne, the chief executive officer of Urban Outfitters said the problem was being caused by an oversupply in retail space with many players opening stores with most of them focusing on the same line of products – apparel. Hayne didn’t have a positive outlook for the foreseeable future.

“This created a bubble, and like housing, that bubble has now burst. We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate,” said Hayne.

Defaults and ecommerce

So far this year, store closures are outpacing last year’s figures. At this time in 2016, 1,153 store closures had been announced. This year there have been 2,880 store closures so far. By the end of the year, the retail sector’s performance might be worse than was the case nine years ago when the United States experienced its last recession. Going by the current rate of store closures, about 8,640 closings are expected by the end of year which is higher than the 6,200 stores that were closed in 2008.

Some of the factors that are contributing include retail defaults. Stores such as RadioShack, Gander Mountain, Payless, Gordmans Stores Inc, and HHGregg Inc are shuttering stores of part of bankruptcy plans.

Sluggish demand for the brick and mortar stores is also being blamed on the rapid growth of ecommerce with Amazon taking the lion’s share of that growth. Last year, 53% of the growth in online sales benefitted the online retail giant.