Surging closures signal rough 2019, in Scoreboard
The year is off to a brutal start for store closures. So far, there are more than 4,800 stores set to close. That’s according to Coresight Research in a weekly tally of openings and closings that have been announced by various companies. There are also more than 2,200 openings announced, but the gulf of 2,600 closures is certainly concerning.
For context, 2018 saw 5,524 closures and 3,083 openings. Year to date, the number of closures is well ahead of this time in 2018. The firm released a dismal 2019 outlook titled “No Light at the End of the Tunnel.” According to the firm, the upcoming year has a lot of the same issues, such as oversupply, and the number of retail outlets compared with per-capita spending is higher than 2007, just ahead of the Great Recession. High debt is another factor that drives companies to close stores, and the ratio of earnings to debt service is frightening for a handful of sectors including c-stores, department stores, drug stores, foodservice and mass merchandise.
And while some select apparel and specialty retailers are making plenty of money to pay down debt, servicing those obligations is getting harder at companies across segments especially as interest rates rise.
The economy at large seems good. According to the National Retail Federation, retail sales grew 4.6 percent in 2018 and it projects sales will grow another 3.8 percent to 4.4 percent in 2019. Meanwhile, the Federal Reserve projects 3 percent GDP growth. But the rosy numbers may signal peak retail, meaning “spending can only decline.” If spending does lag in this environment, there could be many more bankruptcies this year. As of mid-February, the number of bankruptcies was at one-third the level of the entirety of 2018.
But the biggest factor, according to Coresight Research, is the penetration of e-commerce, which now accounts for 14 percent of retail sales. That is projected to continue growing, to 15 percent this year and accelerate through 2023 to 22 percent of sales.
A key consideration for opportunistic growers salivating over this real estate: Is the trade area really e-commerce resilient?