Deny or Adapt – The Hard Truth About Brick and Mortar Closures

The state of the retail industry lies somewhere between “all is rosy” and “doom and gloom.” Some companies are doing great, some just okay, others are barely staying afloat. With predictive analytics of customer behavior pointing to continued shifts in trends throughout 2019, certain retail businesses will need to proceed with caution.

Do customer data analytics point to a strictly e-commerce future?

Perhaps for some, but data shows this is certainly not the case for all retailers. In 2018, industry giants like Sears and Toys R Us shuttered all their locations and filed for bankruptcy. While store closures and company bankruptcies are a part of the normal ebb and flow of retail, what we are experiencing now is anything but normal. Retail analytics show that companies must adapt to meet the needs of contemporary consumers.

In the same year, brick and mortar stores saw a 5% increase in sales over last year, and online sales increased by 19% (Mastercard Spending Pulse report.) But, throughout 2018, retail was in a state of upheaval, and legacy retailers, like Sears and Toys R Us, finally closed. Darrin Duber-Smith, marketing professor at MSU Denver, was quoted saying that “weak retailers will close but it takes them forever to do it.” Obviously, this was the case with Sears.

According to analysis from Coresight Research, retail is at its “peak,” which is the best state retailers can experience, within the constraints of the U.S. economy. However, retail companies should keep their eyes on customer data analytics, because when the next downturn happens, they might be the next to announce bankruptcy.

Retail Analytics vs. Reality

So, why are retailers unable to stay open during such abundant times? The easy (and somewhat common) explanation is that e-commerce has killed brick and mortar retail. But we live in a world of great complexity, and retailers cannot solely blame consumer trends or e-commerce as the reason they didn’t survive. Overall, companies are under severe pressure to adapt to the new retail landscape. Some are doing better than others, but there is still much work to be done, and customer data analysis shows many more store closures are on the horizon in 2019.

“These are challenging times for retailers, particularly those who are not prepared to meet the needs of contemporary consumers,” said Dave Huntoon, Principal at Intalytics. “In order to survive and thrive, retailers either need to have a well-integrated omnichannel offering that that addresses both brick-and-mortar and digital shopping needs of consumers or have an in-store shopping experience that cannot easily be satisfied by e-commerce.”

As of the release of the Coresight Research report, retailers had already announced plans to close over 1,600 stores in 2019, which annualized would roughly double the store closures announced in 2017 and 2018 combined. And, just this past week, Payless, a discount shoe retailer, announced plan to close all 2,100 stores in the U.S., which is over double what was announced earlier this month.

Much of the growth of new stores was through dollar and discount stores (Dollar General) while most closures were specialty apparel retailers. Other categories hit hard were traditional department stores, toy stores, and electronics retail, just to name a few.

Good news is the large number of store closures was somewhat offset by opening new locations, but not by the same retailer. Some retailers are more “e-commerce proof” than others. It greatly depends on the goods being sold and whether a retailer can provide an amazing in-store experience to counterbalance the convenience of e-commerce shopping.

Final Thoughts

Retailers mustn’t keep their heads buried in the sand. They cannot simply continue to say, “Times are good! Sales are up! Why should I worry?” And, as comfortable as it might be for retailers to develop short-term strategies to offset poor sales performance, short-sightedness will ultimately guide a retailer into bankruptcy.

Changes need to be made. Molds broken and rebuilt. And, all this needs to happen fast. It will not be easy nor pleasant for retailers, but the status quo will no longer allow retailers to effectively compete with competitors who have already “e-commerce-proofed” their businesses.

For more information regarding the state of the department store industry, read our post Tough Sledding for Department Stores.