Store Closings: What They Mean … or Don’t Mean

Every day the news seems to feature stories of more retail stores closings. Macy’s is closing about 100 locations. JCPenney plans to close up to 140. Abercrombie and Fitch has identified 60, and Staples 70, that will close, and Urban Outfitters, Kohl’s, and others are all downsizing their brick-and-mortar fleets this year.

The explanation usually given is that ecommerce retail trade is taking business away from physical locations, and it foreshadows the end of brick-and-mortar stores. Although that is undoubtedly part of what’s going on, the complete answer is more complicated and multidimensional than that. Consider that:

• just as these companies are closing physical stores, others are expanding and opening new ones. T.J. Maxx, Burlington Coat Factory, and—of all companies—Amazon are all expanding their physical retail footprint.

• the retail real estate market is cyclical. There was huge expansion during the 1990s and 2000s in both new construction and into new “hot” districts in most cities. Many of those leases come due for renewal about now. So retail companies might look to close marginally performing stores and negotiate a better deal at a new location. This is an on-going process of realigning their fleets.

Let’s Look at Macy’s

A lot has been made of Macy’s in particular. Their plan to close 100 stores wasn’t a popular decision with customers. But Macy’s has had way too many stores for way too long. They bought up and absorbed virtually all the regional department stores throughout the country and ended up with stores in close proximity to each other. Closing many of them is a healthy realignment of their properties and not the end of them or the Macy’s brand. Management probably should have been doing more of this all along.

In most cases, no one is tearing down those big, old department stores. Instead, many of them are being repurposed, with smaller retailers on the ground floor, offices and condominiums on the upper floors. It’s actually a wonderful, creative, and positive process to watch.

Retail companies manage a process of continually redefining the way they sell stuff through different channels. This is often called their “omni channel strategy.”

Finding the Balance

Most retailers or brands sell their merchandise in multiple ways, principally through

• brick-and-mortar stores,
• ecommerce
• mobile devices, and
• catalogues

Thousands of catalogues are printed and mailed out each and every day. Naturally, some companies are better or worse at some channels than at others. Macy’s probably does brick-and-mortar stores better than they do online. Amazon would be expected to do ecommerce better than physical stores.

So finding that balance between the different channels is the challenge. And to make it more interesting, the right balance will be different for different brands and different retailers, and will continually change over time, even short periods of time.

It’s a dynamic and organic model. Constructing and operating physical stores is very different from web design and maintenance. When a retailer makes major changes to their fleet of stores, it is much more noticeable than making changes to the website. And it takes longer. It appears to be a much bigger deal, which is why it makes headlines.

What Does It Take to Be Successful in Retail?

More than anything, people crave a sense of community. A connection. And stores create that experience in a real and tangible way. So physical stores will never disappear but the number and locations will evolve.

In a blog titled “The #1 Reason Brick-and-Mortar Stores Will Never Go Away,” I wrote about the importance of community for retailers. “It’s the total experience—even the smells—you find in a physical store,” I wrote, and I still believe that. There are some products that customers just want to touch, feel, and try on. For example, who would pay $1000 for a pair of Italian leather boots without trying them on? It’s the whole physical experience that people crave and value.

So retail companies close stores for reasons that are multifaceted and complicated. It is not just because of ecommerce taking business away. And the reasons are different for different companies … but I believe that the retailers that manage to create a sense of community—no matter which merchandising channel they focus on—will be the success stories for the long run.

Learn more about retail in my soon-to-be-released book, The Five Laws of Retail From di Medicis to Macy’s. Sign up to follow my blogs and to be notified when the book is available.