Department stores need to close hundreds of locations if they want to regain the productivity they had a decade ago, according to new research from Green Street Advisors.
The real-estate research firm estimates that the closures could include roughly 800 department stores, or about a fifth of all anchor space in U.S. malls.
Drastic Cuts Called For
Green Street indicated that J.C. Penney Co. (NYSE:JCPC) would need to close 320 locations, roughly 31% of its stores; Nordstrom Inc. (NYSE:JWNC) would need to shut down 30 stores and Macy’s Inc. (NYSE:MC), which has been more aggressive than others with store closings would only need to eliminate 9% of its base or 70 stores.
Green Street senior analyst, DJ Busch said, “Department stores used to be a great catchall for different brands, but today many of the brands have stores of their own, and shoppers can also find them online.”
Because of that, major department store chains averaged only $165 per square foot in sales last year, a drop of 24% from a decade ago. Over that same period these stores only reduced their physical footprint by 7% overall.
Reluctance To Act
Although some chains like Macy’s and Sears have moved quickly – Sears recently said it would close 78 of its Kmart stores this summer – others have not. Case in point – J.C. Penney, which has only closed 7 stores out of more than 1,000 this year.
Generally speaking, chains explain their reluctance by saying mass closings are not the answer. J.C. Penney chief financial officer, Ed Record said, “There’s a misperception out there that when we close a store that business transfers online. When we close a store, particularly in a small market, we see our dot-com business go down.”
According to a Nordstrom spokesman, all of its stores are profitable, and closing stores “is not our normal practice.”
Some chains, Macy’s for example, have tried to attract customers into malls with expanded cosmetic sections, personalized customer service and even electronics shops branded by Best Buy Co. (NYSE:BBYB). Macy’s even added an outlet within its full-priced stores called Backstage.
J.C. Penney is also overhauling stores and is now selling appliances in some locations, opening up Sephora cosmetic shops and offering salon services in an attempt to attract foot traffic. J.C. Penney also recently teamed up with online presence, Pinterest, in an attempt to gain Mother’s Day sales.
Amazon Prices May Not Be Lowest
Meanwhile, although online shopping has exploded and companies like Amazon (NASDAQ:AMZNC) have clearly taken a bite out of mall anchor stores like Macy’s, J.C. Penney and others, a recent New York Times article demonstrated that shoppers should not assume “online” equals “cheaper.”
The problem relates to the fact there are no regulations regarding “list price” for online sales. The Times article, for example, mentions a cat litter pan with a “list” price of $2,159 going for an unbelievable $28.
To be fair to Amazon, the issue concerns third party sellers on Amazon, not Amazon itself. Still, if the problem gains traction, Amazon could be hurt under the “guilt by association” rule.