Via Mike Shedlock, Daily Finance is reporting that ten large retail chains have decided to close stores:
Both Saks (SKS) and Abercrombie & Fitch (ANF) said they were closing stores in several parts of the country. Meanwhile, other stores like the struggling Blockbuster video rental chain, continue to slash stores by the dozens. American Apparel (APP), which is close to defaulting on its loans, just may be next.
Consumers just aren’t shopping the way they used to. Even Wal-Mart Stores (WMT), which typically fares well during tough economic times, is worried. “The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending,” said president and CEO Mike Duke in a statement that was released during the company’s second quarter earnings report.
With the prospects for economic recovery iffy at best and consumer spending still moving at a snail’s pace, it’s little wonder that retailers are sussing out their weakest stores and closing them in order to protect profits. Retailers say they are positioning themselves to play where they can be strongest and avoid burning resources in places that won’t produce the results they want.
The article points to at least 1,000 stores being closed. I’m honestly surprised we haven’t seen a lot more of this sooner. A lot of the stores to close appear to be on the West Coast but that may just be an illusion. How many of these closings are structural, how many are related to the economic downturn, and how many are strategic? I’m guessing that many are structural. Certainly Blockbuster’s are. Their business model has collapsed.
Mike also makes a valuable point:
Please keep those store closings when retail sales numbers are reported.
The numbers are typically reported as percentage increases and decreases of “same store sales”. If retailers all close weak stores, reported “same store sales” go up. However, total aggregate sales don’t.
Moreover, one also needs to factor in store closings. From the Toledo article “Several large signature properties – the closed Circuit City store and former Lone Star Steakhouse on Monroe, and the Smokey Bones Barbeque and Grill on Talmadge – have remained closed for more than 18 months.”
Some of those sales vanished into thin air, some of it went to other stores exaggerating “same store sales”.
This is the reason one must analyze sales tax revenue instead of relying on “same store sales” for consumer spending estimates.
I’ve asked this question before: where do we expect economic growth to materialize from? Clearly, it’s not coming from either retail or housing construction.
Another thought this brings up is what this means for the commercial real estate market.
There are still several strip centers in my immediate area that were started before the downturn started that have yet to be completely filled, including one where construction sat idle for nearly a year when the project owner filed Chapter 11. News like this isn’t going to help the mall developers at all I would think.
Further, Doug, many commercial RE loans have a 5 year term, and were made as commercial construction surged in 2005 and 2006 (see various indices). So they are coming due right now and over the next 18 months, yet occupancy is not sufficient to service the loans. Which means these mid-sized lenders will take hits to reserves…..so they don’t want to lend. It truley is a vicious cycle.
I live in a rather prospreous area, yet the number of see-throughs is quite large. A friend of mine who is in the business of placing businesses into CRE told me he sees at least two more years to reach equilibrium.
Drew,
The other thing I’m seeing around here are a number of projects that have signs saying “Coming 2010” (or in one case “Coming Spring 2009”) for which there hasn’t even been site work done. Obviously, financing is at least part of the issue there I would imagine
We still have all the shuttered Mervyn’s and Circuit City stores. Blockbuster is closing as fast as they can, stripping off the familiar signs. The malls still get a lot of foot traffic but I wonder how many are buying. The only time I run into lines is at Costco.
I say score one for the demand crowd. The structural issues have been going on for a while, but for the most part, it still feels like a balance sheet problem.
Steve
My brother works in that market – he specializes in building commercial interiors for offices and other commercial buildings. Things are picking up, but are still very brutal. He’s getting a ton of pressure from property owners who are in serious competition to fill space. They’re demanding virtually instantaneous bids from contractors like my brother in order to beat their competition on snagging a potential leasee. He lost one bidding opportunity because it took him ten minutes to call the guy back – the guy said if it takes that long to return the call, you must not want the job, so don’t even bother bidding – this from a guy my brother has worked with for years. Building managers are desperate-crazy right now.
At least my brother is getting work and surviving – for now at least. It helps that a lot of his competition has probably gone under. Credit is also tight – banks don’t want to loan to contractors which is not surprising I suppose.