7 Biggest Retailers Closing Stores and Why Is This Important

It’s likely you’ve heard brick-and-mortar stores are not doing great. With eCommerce on the rise, it just doesn’t make sense for large retailers to keep up their existing stores. Expanding the network is out of the question, especially in established markets. While there is still space for growth in emerging markets, they are not really fond of blindly adopting the brick-and-mortar model.

China, for example, is likely to skip the large store networks and jump directly to eCommerce. Its fast growth in terms of online retail will bring $655 billion in online sales by 2020. The secret lays in the large disparity between the brick-and-mortar reach (13%) and online retail reach (51%).

US, on the other hand, provides a larger brick-and-mortar coverage (30%). US is also the leader in terms of store square feet per capita: 43. That is probably one of the biggest issues in brick and mortar retail: it has outgrown its limits.

As a result, a drastic change in the large retailers strategy had to happen. The likes of Sears, JC Penney and Staples (which is also the second largest internet retailer) started closing shops and decreasing store footage. Jobs were cut and loses reported. Here are the five most prominent cases:

Biggest Retailers closing Stores

1. Sears is set out to close 100 stores

Sears and Kmart
Sears and Kmart

After a disappointing 2011 holidays sales  ($2,4 billion in losses) , Sears Holdings Corp., the  corporation managing Sears and Kmart decided it’s time for a change. They’ve set out to close 100 shops, providing no details wether jobs will be cut.

Sears competition, Walmart and Target have been eroding the company’s sales. Its stores are deteriorating, sales are dropping by the month and even the store closure / selling won’t probably do any good.

Two years after the announcement and the company has hardly seen any improvement. Sears Canada is laying off 1600 people, as a result of store closures, and there is no clear strategy in sight.

The saddest thing: Sears started off as basically the grandfather of eCommerce. 125 years ago, the company was but an mail order by catalogue operation. Talk about going back to the roots.

2. Blockbuster is closing all remaining stores this year

Blockbuster
Blockbuster

Blockbuster was “just around the corner” not long ago. The company that introduced a new way of spending fun time at home, watching movies, is now about to close its remaining 300 stores.

Heavy competition from digital streaming from Netflix, iTunes and RedBox, made Blockbuster’s model obsolete. After closing the DVD-by-mail operations, the company will have cut its links with the past.

“Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.” said Joseph Clayton, CEO of Dish Network, Blockbuster’s parent company.

For Blockbuster, this is definately not a happy ending. In 2004 the company ran a network of 9000 stores and reported $5.9 billion in revenue. After all is said and done, RedBox may be the real winner here, with the potential to attract an additional $300 million in revenue after Blockbuster is bust.

3. JC Penney is closing 33 stores and laying off 2500 people

jcpenney_new_logoJC Penny has had a rough couple of years. Main reason: its former CEO Ron Johnson implemented the wonderful strategy of keeping costs down as opposed to promotions and discounts, in response to lower costs online. Revenue has plummeted and the company, with its margins already stretched thing, needed a change.

Current CEO, Myron Ullman III, expects these closures and lay-offs to save $65 million a year beginning in 2014.

Unfortunately, just like Sears, JC Penney has no strategy but survive long enough for a miracle to happen.

4. Barnes and Noble closed 51 stores since 2008, plans to close an additional 20. Also – it will likely kill its Nook tablet

barnes_and_noble_logoBarnes and Noble may be just another sad case of “ran-over-by-digital”, just like Blockbuster. In July, 2013 – CEO William Lynch Jr. stepped down without any additional information. Suspected reason: net loss doubled to $119 million. Suspected reason no.2: The Nook is taking a plummet, which accounts for the previous stated net loss.

The fact is Barnes and Noble has no chance of continuing without a clear check on its business model. Its competition is not some previously defunct Borders-like company. It is Amazon – the biggest online retailer and the fiercest retail competitor.

Chances are that even if Chairman Leonard Riggio, owner of 30% of B&N stocks, does take the company private, it will not do much. He is no Jeff Bezos and the company is really late to the web party.

5. Borders employed 19.500 people and operated 511 Superstores. It filled for bankruptcy in 2011.

Borders_Bookstore_Sign_LogoOne of the saddest entries on the list is of course Borders. At peak, the company employed 19.500 people that handled each and every customer with great care. People loved the company. They loved visiting the beautiful stores, browsing the books, chatting with store associates. They would than buy the books online.

The harsh truth is Borders was killed by showrooming, Amazon, iTunes and to a certain degree – its own inability to adapt to the web.

The company was everyone’s friend: people would see and feel the books, even buy once in a while. But when it came to the big shopping lists, orders went online.

In 2011, despite an offering from an investing company, Borders failed to find a buyer acceptable to its creditors. Its last 399 retail outlets began liquidating on July 22. Competitor Barnes & Noble acquired Borders’ trademarks, customer databases and the borders.com domain.

6. Radioshack closes 500 stores. Tries to handle $625 million in debt.

radioshack-logoRadioshack is an American classic. It operates 4500 stores nation-wide and it’s now closing 500 of them. Although the news seem gloomy – there is still hope for the company.

Nah, just kidding. The company is awful. It’s shares plummeted in the past years, it barely refinanced its $625 million in debt and is now trying to figure out where its headed.

Radioshack bet big on tablets and smartphones, a move that somehow misfired. These low-margin categories caused a decrease in net income by aprox. 300% . Ouch!

Radioshack's Net Income is in an awful state
Radioshack’s Net Income is in an awful state

In October 2013 Radioshack secured a $835 million loan from a group led by GE Capital, that freed up some cash and managed to get the company back on track, at least for now.

7. The Jones Group cuts 8% workforce, closes 170 stores.

JonesGroup_LogoClothing retailer Jones Group will cut approximately 800 jobs and close 170 retail stores. The group handles sales for some well known brands such as Nine West, Stuart Weitzman, Easy Spirit, Gloria Vanderbilt and Givenchy.

As of last year expected revenue was slashed to $3.8 billion, as opposed to 2006 $4.7 billion.

Global competition, recession and an increase appetite for brands bought online pushed the company to change its overview on brick and mortar retail. A special factor in decreasing sales have been flash sales sites such as Gilt or Ebay’s RueLaLa. Brands bought online on these sites have an increasing customer-base and will continue to put a dent in traditional fashion retail.

And now for the bright side …

Pretty hard to figure how these closed stores would be good thing for anyone. After all retailers are sure to suffer from decreased sales and customers will find it hard to get good deals. Jobs are lost and the economy will be. Unfortunately, that is partly true.

It is also true that most brick and mortar retail chains are a waste of money. The brick and mortar superstore is an over-bloated concept. With 43 square feet per capita in terms of retail footage, something is surely wrong.

A change in retail is needed as both logistics and store operations are hardly at their most productive. Online retail is a revolution that will improve retail. It will clear the old and bring in the new.

Retail chains closing stores means customers  better served online. It means remaining stores used as logistics hubs. It means better showrooming facilities. It means change and here are some:

  1. Inventory will be a burden no more – each store needs investment in shop inventory. Most of it is unnecessary and lots of said inventory goes to waste due to showroom handling. An online-first operation will decrease operational costs and customer prices.
  2. Think network of small stores instead large megashops – Large stores will be replaced by small stores. This stores will cater to smaller communities and reduce overall costs in handling, as well as provide more fulfilling jobs to store associates.
  3. Stores as logistics hub, in support of ecommerce operations – said smaller stores can act as pick-up spots for customers ordering online, testing products and returning orders.
  4. Embrace showrooming – Stores will eventually turn to showrooms as the logistics behind such a concept are more flexible and cost effective . Customers want to feel the product and than get a great deal on it. Showrooming caters to this need.

Yes, retailers are closing stores. But not all. Those that will survive will be smaller, more flexible, showroom-first facilities.

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