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Retail Apocalypse or Renaissance?

New research from IHL Group finds new store openings are outpacing closings
Photograph: Shutterstock

More than five retail chains—across multiple industry segments—are opening stores for every retailer that is closing stores in 2019, according to new research from Franklin, Tenn.-based IHL Group. This is up from 3.7 retail chains in 2018. The global research and advisory firm also reports that the number of chains adding stores in 2019 has increased 56%, while the number of closing stores has decreased by 66% in the last year.

IHL’s Retail Renaissance–True Story of Store Openings Closings report reviewed 1,660 retail chains with 50 or more locations in the United States across nine industry segments, including food, drug, convenience, apparel, department stores and foodservice.

The report finds that 64% of retailers are increasing their number of stores in 2019, with food, drug, convenience and mass merchants leading the charge. More than 9.5 chains in the food, drug, convenience and mass channels are opening vs. closing stores. This is compared to restaurants (fast food and table service), with 6.3 chains opening vs. closing stores, and 3.7 of apparel, hard goods and department stores opening vs. closing.

For each retailer, the company measured the total store counts at the end of 2016, 2017 and 2018 and plans for year-end 2019 based on company filings and statements. The net total increase or decrease in store count was noted, and that data was tallied across companies.

IHL reports that fewer retailers make up the bulk of closures in 2019. In 2018, 20 chains represented 52% of all stores closed. In 2019, the 20 announcing the most closures represent 75% of all closures. 

“U.S. retail has increased $565 billion in sales since January 2017, fed not just by online sales growth but net store sales growth,” Lee Holman, VP of research for IHL Group, said in a statement. “Clearly there is significant pressure in apparel and department stores; however, in every single retail segment, there are more chains that are expanding their number of stores than closing stores.”

According to IHL, excess debt and rapid overexpansion driven by historically low interest rates, are the two primary factors driving chain closures. Lack of innovation and short-sighted private equity have also played a significant role in many store closings, note the researchers.

It is “normal and healthy” for chains to be both opening new stores and closing nonperforming stores, said IHL Group. Only two industries—apparel and department stores—show a net decline in stores among all the retailers in the segment. 

A Growth Story

In its recent webinar, “Retail’s Renaissance–A Growth Story,” IHL explores “the true story of store openings and closings and the future of retail.” Spoiler alert: The so-called "retail apocalypse" is a lie, according to IHL researchers.

“We've had this retail apocalypse narrative for about two years, and it's simply false,” Greg Buzek, IHL Group founder and president, said in the webinar. “In 2017—our first year of the ‘apocalypse’—retail sales in the U.S. increased $232 billion, or 4.5% of total. Restaurants were $36 billion of that growth and Amazon was only $29 billion of that total.

“So, all this talk about Amazon taking over retail, it's simply not true, and you can see that in the numbers. In 2018, [retail sales] were up another $251 billion,” Buzek said.

With regard to online sales, IHL predicts that 25% of retail will be e-commerce driven from a purchasing standpoint by 2021. “However, fulfillment at the store will be 81% of all retail still in 2021—and stores matter,” sais Buzek during the webinar.

When it comes to food, drug, mass and convenience, “What we’re seeing is the preponderance of banners that are opening stores vs. those that are closing stores," said Holman during the webinar.

“The only one that has some really serious negative red there is drugstores and that ... has a little bit to do with Rite Aid … the acquisition and divestiture involved there,” he said. “Obviously, mass merchants [and] warehouse clubs [are] growing like gangbusters, [and] there’s a lot of dollar-store activity there. C-stores are also seeing a lot of activity.”

Technology Is the Future

As to the future of retail, said Holman, an investment in technology, accurate data, AI learning and forecasting will be increasingly important.

“Customers come to stores now because they need the item now or they need more experience knowledge. … If you don’t [have the item], they're just going to go online and get it. [And they’ll] write you off as a retailer going forward for that particular product.”

IHL Group reports that this is the first year where the total spend on technology growth at store level was higher than technology spend at an enterprise level.

“The leaders are investing at a rate 70% higher than average in their stores when it comes to technology, and what we mean by that is, they're not only doing the things to update their point-of-sale and their infrastructure, but they're putting the solutions in to do unified commerce right. The leaders are doing that, and the laggards are not.”

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