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Many of the “temporary” store closures from Covid-19 are going to be permanent

Marc Bain
·4 min read
Mannequins and empty merchandise tables are visible through the window of the temporarily closed Nordstrom flagship department store
Mannequins and empty merchandise tables are visible through the window of the temporarily closed Nordstrom flagship department store

In mid-March, as Covid-19 spread through the US, upscale department store Nordstrom announced it would close its stores in the US, Canada, and Puerto Rico to help slow the outbreak. Those stores included all 116 full-line Nordstrom department stores in those regions. Sixteen of those shops, or nearly 14%, will never reopen, the company said on May 5.

It’s not likely to be the last retailer to turn temporary closures into permanent ones. “Nordstrom is probably one of the healthier businesses, at least in the department store channel,” says Doug Stephens, founder of the Retail Prophet consultancy and author of multiple books on retail, including a forthcoming title on business after the pandemic. “If they’re taking that sort of reflective look at their physical footprint, I suspect others will as well.”

Some stores might reopen only to close for good shortly after, as it becomes clear they won’t last. Lord & Taylor is even planning to reopen its 38 department stores just to liquidate inventory in a bankruptcy it’s not expected to survive, according to Reuters.

Either way, experts are forecasting a large number of eventual closures, though given the uncertainty around the situation—and perhaps depending on the optimism or pessimism of the prognosticator—estimates vary. On Twitter, Stephens predicted at least 20% of brick-and-mortar stores in places such as North America and Western Europe could close due to the pandemic. Coresight Research, a research and advisory firm, estimates 15,000 US retail stores might shutter this year alone as many closed stores never reopen. Investment firm UBS thinks by 2025 as many as 100,000 stores could close in the US.

Some of the closings would come from the suffering caused by a prolonged shutdown, particularly among independent retailers. A recent survey by MetLife and the US Chamber of Commerce of roughly 500 small-business owners found 43% believed they wouldn’t survive another six months of shutdowns.

Big chains will likely have to shed stores too. Over the years the US built more retail space than it could sustain. In 2017, CoStar Group, a real estate research firm, estimated 1 billion square feet of US store space needed to close or be repurposed to return to healthy productivity levels. For years US retailers have been closing large numbers of stores. Covid-19 is set to hasten the paring back, especially as it forces many retailers into bankruptcy.

Stage Stores, which just filed for bankruptcy, says if it can’t find a buyer it will liquidate the more than 700 stores it operates across its brands, including Bealls and Palais Royal. JC Penney is reportedly on the brink of bankruptcy and plans to close about a quarter of its more than 800 stores. Macy’s, on the other hand, intends to reopen all its stores, but is also taking on billions in debt to stay afloat.

As department stores such as these and other large tenants anchoring US malls close shop, smaller tenants of those malls could suffer. Many are likely to pull out of their leases, leaving even more vacant malls.

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These aren’t the only factors threatening brick-and-mortar locations. The pandemic has forced consumers to do more of their shopping online. For many it could become a long-term habit. As that happens, companies are likely to respond by shifting investment to their digital businesses. Stores may become even less important as distribution points for products, leading companies to rethink their number, size, and purpose.

“Going forward we will see smaller stores that hold less inventory, that are very adept and capable of introducing a consumer to product and then facilitating an online relationship with that consumer over the long-term,” Stephens says.

In all, the result could be a US retail landscape that looks a bit more like that in China, where e-commerce accounted for an estimated 36.6% of sales of goods and services in 2019, according to research firm eMarketer. Data from the St.Louis Fed shows that, in the US at the end of 2019, e-commerce was 11.4% of retail. For now that number has skyrocketed, with effects on store counts that could last well past the pandemic.

 

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