JLL, Federal Realty, Marcus & Millichap Retail Experts Weigh in on Impact of Closing 4,500 Stores

By Dennis Kaiser

The retail sector is experiencing significant shift, and the resulting challenges are formidable. The impact is being felt across the industry as stores close, chains file for bankruptcy and malls seek ways to navigate a new journey

Just last week, an additional 465 stores of Gap, JCPenney, Victoria’s Secret and Foot Locker were added to this year’s closure list that has grown to more than 4,500. To be sure, it is reflective of the larger issues that the sector must address to survive, yet industry experts say to look beyond the negative headlines to find a different picture.

James Cook

“You may have seen the recent headlines about a new round of retail closure announcements,” says JLL’s James Cook, Americas director of research, retail,, “This might seem like all bad news for the retail sector, but these announcements are really just a sign of huge changes in the habits of the American consumer.”

Cook points out shoppers simply have carved out separate shopping journeys to focus on value retail, convenient delivery and click-and-collect, or higher margin high-touch specialty and luxury retail. While a few shoppers stick to only one of those categories, many more split shopping across all three. He says, for example, a shopper might pick up fresh undershirts in person at Target one day, have socks shipped from Walmart on another, and then buy a fitted suit at Suitsupply over the weekend.

“Retailers that don’t fit into the value, convenience or high-touch categories will have to change,” says Cook. “Those that are unable to change are in real trouble.”

Jeff Kreshek

Federal Realty Investment Trust’s Jeff Kreshek, SVP, leasing, West Coast, says, “From my view, these closings, while painful for some in the short term, are absolutely necessary for the brands and the industry in the long term. The simple fact is that the way people transact has fundamentally changed over the last decade, and as a result, retailers need fewer stores.”

Marcus & Millichap’s Scott M. Holmes, SVP, national director, retail, says despite the negative headlines there are bright spots. He notes holiday sales were the best in nearly a decade, and there are many retailers such as Target, Ulta, Hobby Lobby, TJX and AtHome that continue to expand. Additionally, there’s a growing list of digitally-native retailers such as Untuckit, Casper and others, that have big plans to expand into physical stores.

“With extremely limited new construction in retail over the last decade, supply-demand fundamentals remain very strong in retail,” says Holmes. “We are seeing good rental rate growth across the country for well-located retail centers.”

The numbers for the 2018 holiday season tell a positive story, too. Cook says, “You might have seen those scary headlines about overall holiday sales. But, ignored by the headlines was the fact that December retail sales were 2.3% higher than the previous year. In fact, total sales for 2018 were up 5% over 2017.”

Cook notes, with the exception of Foot Locker, the new chains with announced closures saw a decline in same-store sales over the holidays. Meanwhile, retailers like TJX, Best Buy and Walmart saw strong holiday sales. “The holiday winners appear to be those retailers that focus on value, convenience or high-touch customer interaction,” he says.

Kreshek argues that the focus must be on high impact, high awareness locations, so that retail brands stay in front of the consumer. He believes the first locations likely to go will be locations where the projects themselves have likely lost some relevance with the consumer. Kreshek says, “Again, I know this is painful and will hit a lot of landlords, but this is a thinning of the herd that needs to happen.”

Scott Holmes

Many of the closed locations are already spoken for, points out Holmes. “Retailers such as Hobby Lobby and T.J. Maxx (TJX) have been frustrated by the limited number of available spaces for their size, and the cost of new construction has not worked for them, so these recent closures provide a good “release valve” for them.”

The impact of all of the closures is tricky to ascertain, notes Kreshek. “The real question in my mind is how do these retail closures get absorbed,” he says. “The complicated answer is that some will not be absorbed traditionally (like for like) but rather will force a property (more than it may already be forced) to evolve.”

Retail strategies are shifting to accommodate the changes, too. Cook notes, at the same time that Gap announced 230 store closures, it also laid out plans to spin off Old Navy into its own separate company. Old Navy, with its lower prices, accessible stores and trendy clothing is fully in synch with the needs of today’s shopper. In fact, Old Navy is still opening new stores, Cook points out.

Kreshek says it is impossible to fill every vacancy with food, fitness, entertainment, or digitally-native brands, though. “Some spaces (and projects) just should not be retail any longer, and the closures may only emphasize that,” says Kreshek. “What it will really take is owners being introspective and realistic, and in some cases bold enough to really look at their projects and chart a new course.”

The other factor that has made the retail story seem so dire is debt. Multiple retailers had taken on debt in the past to open more locations, notes Cook. And others were saddled with debt after private equity acquisitions. An example of that is Payless Shoes, which was never able to fully escape the $2 billion it owed after an acquisition. It announced liquidation last month.

So, what does this mean for the retail real estate industry? Cook says, “We will all need to become specialists in transition. Experts in understanding where the new shopper wants to go, what she wants to buy and where she wants to buy it. Experts in the New Retail.”

He advises going to any Class A mall or prime retail street where herds of digital-native brands like Untuckit, Ministry of Supply and Casper have flocked in search of growing market share and building their brands by opening physical stores. “Of course, not all of these new brands will be successful,” says Cook. “And we do indeed have more retail space than we need in the U.S.”

However, retail is not going away, it’s just changing. Cook predicts, this isn’t an end, just the start of a new beginning.

For comments, questions or concerns, please contact Dennis Kaiser