A pandemic shakeup in 2020 led to a surge in store closures, coupled with dozens of retailers filing for bankruptcy, which emptied out shopping malls and left vacancies scattered along the streets major markets including New York City.
The aftermath, though, was a temporary relief from closures, as companies took the chance in 2020 to quickly slim down their store counts when consumers were holed up at home. In fact, in 2021, retailers reported net store openings, marking a sudden reversal from years of net declines. Companies seized the opportunity to take advantage of cheap rents and an eagerness among Americans to get out and shop again.
While analysts at UBS see more pain ahead, it’s not as many closures as the investment bank had initially projected about a year ago.
Brick-and-mortar shops have proven to serve a critical role for retailers’ businesses during the Covid pandemic, the bank said in a new report on Wednesday, and retail sales growth has remained strong, in part due to rising inflation. This all bodes well for the future of physical stores, according to UBS retail analyst Michael Lasser.
UBS is now projecting between 40,000 to 50,000 retail stores in the United States closing over the next five years, down from the 80,000 closures it previously forecast. That’s out of about 880,000 total retail stores that the firm tracks nationwide, excluding gas stations.
This estimate assumes that US retail sales grow about 4% annually, moving forward, and that e-commerce sales as a percentage of total retail sales grows to 25% by 2026, from 18% in 2021, Lasser said in the report.
UBS sees the most closures shaking out among clothing and accessories retailers, consumer electronics businesses and home furnishing chains, or about 23,500 cumulatively within these categories by 2026.
Traditional shopping malls remain at higher risk for closures than neighborhood strip centers, the firm said. That’s largely because shopper traffic to malls, often anchored by department store chains, has been pressured in recent years as consumers favor quick trips to stores closer to where they live.
Meanwhile, general merchandise retailers, such as Target and Walmart, and auto parts businesses are expected to report net openings in the years ahead.
According to Lasser and his team, there is still about 58 square feet of shopping center space per household in the US, as of 2021. While thats down from the 62 square feet per household in 2010, it’s above 55 square feet in 2000 and 49 square feet in 1990.
As consumers shift more of their spending onto the web, it only makes sense that that number would shrink, Lasser explained.
So far this year, retailers’ plans to open new locations are far outpacing their plans to shutter shops. Tracking data by Coresight Research show US retailers having announced just 1,385 store closures, compared to a whopping 3,694 openings, as of April 1.
The store growth is being driven by dollar chains and discount stores, like Dollar General and TJX – and also by a wave of so-called digitally native companies that started on the internet but are now seeking acquiring new customers via bricks and mortar. Some examples include Warby Parker, Allbirds, Vuori, Brooklinen and Fabletics.
UBS, which releases these closely followed, deep-dive store closure reports every few years, said that the number of shopping centers in the US reached a peak of 115,000 last year, up from 90,000 in 2000, despite a continued acceleration in e-commerce .