The Top 8 Categories with the Highest Expected Store Closures
How many retail stores is enough? For UBS that number translates into 100,000 fewer stores in the United States.
UBS in a recent research note to its clients estimates that between now and 2025, 100,000 retail stores could close in the United States if online sales increase from 15% of retail sales today to 25%. Many believe this is a long time coming since the United States is already over stored with the highest retail square footage per person in the world at 23 sq. ft. In stark contrast, the United Kingdom has five sq. ft of retail space per person, Spain has four sq. ft per person and Germany has two sq. ft. per person.
The types of retailers most impacted by store closures will be the ones with high eCommerce penetration rates as well as the the ones already facing challenging headwinds.
Take apparel and accessory stores. Before the COVID-19 pandemic arrived there was a trend towards consumers purchasing less clothing. That trend has accelerated with consumers no longer needing to purchase formal wear or workwear due to the pandemic. This is one of the reasons why the clothing and accessories category has faced deep sales declines with sales down by 63.4% and by 23.2% in May and June respectively versus last year in the United States.
Many of the recent bankruptcies including Neiman Marcus, Ascena Retail Group (owner of Ann Taylor, LOFT and Lane Bryant) and JCPenney are clothing retailers demonstrating that this category is struggling. Apparel and accessories is also a category where consumers shop more online than other categories. As the pandemic continues to boost online spending expect to see the share of clothing sales coming from digital channels to increase decreasing the number stores required.
Home furnishings is another category where more sales have migrated online due to the popularity of online retailers like Wayfair and Casper. ″I think Wayfair may be benefiting more from COVID-19 than almost any single other company except for like an Instacart,” said Dan McCarthy, Assistant Professor of Marketing at Emory University.
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As more and more sales migrate online the number of stores will rationalize over time. That is why even though grocery retailers have performed well during the pandemic as more of their sales shift to digital channels some rationalization in their store count is to be expected.
It is also important to note that UBS’ analysis is based on eCommerce penetration reaching a quarter of retail sales within five years which is a big jump from where it is today even with the pandemic shifting behaviour. No one has a crystal ball as to what eCommerce penetration will look like in five years but what UBS’ analysis does show is which categories will be more heavily impacted than others.