A pandemic-related shock in 2020 led to a spike in store closures, coupled with dozens of retailers filing for bankruptcy, leaving malls emptied and vacant lots scattered on the streets of major markets, including New York City.
The aftermath, however, has been temporary relief from closures as 2020 saw businesses jump at the opportunity to quickly scale back store numbers as consumers holed up at home. In fact, retailers reported net store openings in 2021, marking a sudden reversal from years of net declines. Businesses took advantage of the opportunity to take advantage of cheap rents and Americans’ willingness to get out and shop again.
While analysts at UBS foresee more pain, it won’t be as many closures as the investment bank originally forecast about a year ago.
Brick-and-mortar stores have proven to be a crucial part of retailers’ businesses during the Covid pandemic, the bank said in a new report on Wednesday, and retail sales growth remains strong, partly due to rising inflation. According to UBS retail analyst Michael Lasser, this bodes well for the future of brick-and-mortar stores.
UBS now forecasts that between 40,000 and 50,000 retail stores will close in the United States over the next five years, up from the 80,000 closures previously forecast. That’s about 880,000 retail locations the company tracks nationwide, excluding gas stations.
That estimate assumes U.S. retail sales will grow at about 4% annually and that e-commerce sales as a percentage of total retail sales will grow to 25% by 2026, up from 18% in 2021, Lasser said in the report.
UBS sees clothing and accessories retailers, consumer electronics companies and home furnishing chains as the top closures, or about 23,500 cumulatively in these categories through 2026.
Traditional malls still face a higher risk of closure than neighborhood centers, the company said. That’s in large part because shopping traffic at malls, often anchored by department store chains, has come under pressure in recent years as consumers prefer quick trips to stores closer to home.
Meanwhile, general merchandise retailers like Target and Walmart, as well as auto parts companies, are expected to report net openings in the coming years.
According to Lasser and his team, there will still be about 58 square feet of shopping center space per household in the US in 2021. While that’s less than the 62 square feet per household in 2010, it’s over 55 square feet in 2000 and 49 square feet in 1990.
As consumers shift more of their spending online, it’s only logical that that number should shrink, Lasser said.
Retailers’ plans to open new locations have far outpaced their plans for physical stores so far this year. Tracking data from Coresight Research shows that US retailers announced just 1,385 store closures as of April 1, compared to a whopping 3,694 new openings.
Store growth is being driven by dollar chains and discounters like Dollar General and TJX — and also by a wave of so-called digital-native businesses that started on the internet but are now trying to attract new customers via the brick-and-mortar market. Some examples are Warby Parker, Allbirds, Vuori, Brooklinen and Fabletics.
UBS, which publishes these detailed reports on store closures every few years, said the number of malls in the US peaked at 115,000 last year, up from 90,000 in 2000, despite a continued acceleration in e-commerce.