The following video is brought to you courtesy of the Epic Economist YouTube Channel. Click the video below to watch it now.
If you’re seeing increasingly more darkening storefronts and empty stores at shopping centers and malls, you’re not the only one. The retail apocalypse continues to ravage the U.S. economic landscape and the staggering number of closed stores illustrates the severity of the hurricane blowing through the sector over the past few years. However, since the burst of the sanitary outbreak, the industry’s downfall seems to have been greatly accelerated, and now major US retail chains and shopping malls are on the edge of extinction as new consumer preferences might have changed the market for good.
In 2020, roughly 200 department store chains have completely disappeared, and rock bottom is not even here yet. Another 800 – which represent nearly half the country’s remaining mall-based locations – are expected to close by the end of 2025. That, in turn, will have a massive impact on malls, since department stores account for approximately one out of every three square feet in such properties. The alarming number of store closures registered so far and the consequent cascading effect caused on shopping malls across the country – which are already suffering from record-high vacancy rates and precipitous declines in foot traffic – are also on weighting upon the commercial real estate market and the broader economy.
In essence, department stores used to be the American middle-class preferred shopping alternative, but the sector had been slowly decaying long before the health crisis turbocharged online shopping and drove multiple iconic US retailers to bankruptcy. Now, their collapse is directly affecting local labor markets and local communities. Unfortunately, those lost jobs are likely to never come back and the vast majority of closed doors will never be reopened.
Last May, Neiman Marcus, Stage Stores, and J.C. Penney filed for bankruptcy, followed by Lord & Taylor and, most recently, Belk in February. Even companies in relatively stable conditions have shuttered dozens of physical stores due to significant revenue drops. Big names like Macy’s, Nordstrom, and Kohl’s have reported steep sales declines since the health crisis started and slashed demand for shoes, clothes, and formalwear, which disproportionately fill their stores. According to industry experts, apparel stores are “in the eye of the storm,” as they registered the highest rates of default in 2020 and still are facing other long-term pressures, such as lower foot traffic.
A recent Washington Post analysis of corporate earnings releases and annual reports pointed out that the country’s largest department store chains have permanently closed almost 40% of their locations since 2016. And UBS is estimating that about 80,000 more stores will be shut down by 2026. The industry’s challenges extend way beyond short-term sales figures. They also must deal with questions about the viability of shopping malls, particularly because vacancy rates reached 11.4% in the first quarter.
“The department store genre has been taking the great American shopping mall down with it, slowly but inevitably,” said Mark Cohen, the director of retail studies at Columbia University who was previously the CEO of multiple department store chains in the US and Canada. In face of that bleak outlook, Coresight Research estimated that 25% of America’s nearly 1,000 malls will close by 2025. Oftentimes, department store closures in malls trigger a wave of closures by other businesses within the mall, leaving the owner no other alternative rather than repurposing the property or getting rid of it entirely.
A recent Vox article outlined that the U.S. shrinking middle-class is also contributing to the demise of department stores and shopping centers, and the problems mount back to the aftermath of the Great Recession, when “the vast majority of income growth in the US has gone to high-income households, squeezing middle-class households and altering where they spend money. As a result, chains that sell brands at sharp discounts like TJ Maxx, Ross, and Dollar General have become more popular, siphoning away shoppers from full-price department stores like Macy’s and J.C. Penney that were designed to cater to a stronger middle class “.
Today, even if we could snap our fingers and come back to the era of retail glory, it wouldn’t solve the industry’s key societal and macroeconomic problems connected to its decline. All determinants were already piling up on the sidelines to drive the sector to a reckoning, and the health crisis triggered an existential crisis that will lead to the extinction of many of our previously beloved brands and shopping locations, further jeopardizing our prospects for a recovery while compromising income growth of several groups for years to come.