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Payless-Unraveling

The five largest store closings in 2019 illustrate the ongoing clash between online and in-store retailers. At No. 1 is discount shoe store Payless ShoeSource, which filed for Chapter 11 bankruptcy protection in 2017 yet struggled to remain a viable entity. In February, it finally closed all 2,100 stores across the U.S. and Puerto Rico.

Released each month by the U.S. Census Bureau, the Retail Sales report tracks the receipts from all stores and merchants. It incorporates all in-store, internet and catalogue sales across the 13 distinct retail sectors. Its importance to the financial markets lies in the fact that consumer spending drives roughly two-thirds of all U.S. economic growth.

After a disappointing four-month stretch from November to February, retail sales are experiencing a resurgence. On Thursday, the July Retail Sales report highlighted a very strong monthly sales increase of 0.7%. It was the fifth consecutive month of increasing sales growth. Over the past 12 months, sales have increased by a robust 3.4%.

But as I mention in the article’s title, not all retail sales are created equal. There continues to be a growing disconnect between online and traditional “brick and mortar” retailers.

E-commerce covers all sales of goods and services bought over the internet, mobile devices or other comparable online systems. Currently, e-commerce accounts for just 10.2% of all retail sales. However, its growth and impact on the broader retail industry has been exponential. Five years ago, the share of total retail sales executed online was 6%. But over the past five years, e-commerce sales have increased at an average annual rate of 14.5%. For brick and mortar stores, this pace of growth is just 2.8%.

According to Coresight Research, as of July 31, major retailers have closed 7,567 store locations so far this year. This already exceeds last year’s total of 5,864 store closings and 2017’s record total of 7,000.

The five largest store closings in 2019 illustrate the ongoing clash between online and in-store retailers. At No. 1 is discount shoe store Payless ShoeSource. Payless filed for Chapter 11 bankruptcy protection in 2017 yet struggled to remain a viable entity. In February, it finally closed all 2,100 stores across the U.S. and Puerto Rico.

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At No. 2 is children’s clothing store Gymboree. Like Payless, it also battled through multiple bankruptcy filings before closing all 805 stores in January.

Women’s clothing retailer Dressbarn comes in at No. 3, which shuttered all 650 stores in June. Charlotte Russe, another women’s retailer, is No. 4 and closed all 512 stores in April.

Rounding out the Top 5 is discount variety store chain Family Dollar. Family Dollar is a unique story. It currently operates more than 8,000 stores across 46 states. In 2015, its competitor, Dollar Tree, purchased it for $8.5 billion. In March, Family Dollar announced it would be closing 390 stores and converting another 200 into Dollar Tree stores.

Unfortunately, the path for many of today’s large retailers has included Chapter 11 bankruptcy protection. In fact, most of the retailers on our list filed for Chapter 11 – for some, on multiple occasions. Unlike its counterpart, Chapter 7 bankruptcy – where the company is completely liquidated – Chapter 11 is more of a reorganization. It allows the company to restructure its debt, sell-off underperforming business units and come back leaner and meaner with a sustainable business model. In theory, at least.

The inherent challenge for brick and mortar stores is a higher cost structure – maintaining a physical store front, store fixtures, equipment and staff salaries, among others. Their profit margins are consistently being strained, as lower-cost online retailers can pass these savings onto customers in the form of lower retail prices.

The latest government data does provide a boost of optimism for the retail industry. Hopefully, for both online and in-store retailers, a rising tide raises all ships.

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Mark Grywacheski spent more than 14 years as a professional trader in Chicago, where he served on various committees for multiple global financial exchanges and as an industry Arbitrator for more than a decade. He is an expert in financial markets and economic analysis and is an investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment advisor with the U.S. Securities Exchange Commission.

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