By Tonya Garcia, MarketWatch
All of the “going out of business” signs may have shoppers thinking a retail apocalypse is upon us, but David Berliner, leader of the restructuring and turnaround services practice at business consultancy BDO, says it’s actually a good thing.
“It’s the survival of the fittest,” he said. “It doesn’t mean retail is going away. It’s a repositioning of retail.”
The report “Retail in the Red: BDO Bi-Annual Bankruptcy Update” shows that bankruptcy filings picked up steam in the first half of 2019, with Payless ShoeSource, Charlotte Russe and Gymboree accounting for 3,700 store closures alone.
For the first six months of the year, there were 7,282 store closures announced, according to BDO. In 2018, there were just below 6,000, and BDO quotes the Coresight Research forecast for 12,000 store closures through the end of the year.
Despite the closures, retail sales “remained solid” through the first half, the BDO report says.
Friday’s U.S. retail sales numbers show 0.4% growth in retail sales in August, with help from car sales and building supplies, and retail sales were up 4.1% for the year. Sales at e-commerce retailers and home and garden stores, like Home Depot Inc. /zigman2/quotes/208081807/composite HD +0.49% and Lowe’s Cos. /zigman2/quotes/205563664/composite LOW +0.21% were up.
“The number of outlets that retailers had in the 80s and 90s are no longer in vogue,” said Berliner.
Rather, retailers are getting more strategic about how much square footage they have and what they use it for.
For example, Gap Inc.’s /zigman2/quotes/206554267/composite GPS -3.93% Old Navy announced during the company’s investor meeting on Thursday that it would nearly double the number of stores in its North American fleet, focusing on smaller markets where it has lacked a presence.
Shares of clothing and accessories retailer Zumiez Inc. /zigman2/quotes/210420137/composite ZUMZ +2.09% soared this week after an earnings beat, with Chief Executive Richard Brooks saying that the company’s decision to shutter its fulfillment center in order to use its stores for e-commerce fulfillment was a “critical factor.”
“Not only does the concept of localized fulfillment mean that we now only have one cost structure to leverage, but we can now get product into customers’ hands faster by reducing the order processing time, cutting down the shipping distance to the customer and also offering in-store pickup,” he said.
And Target Corp. /zigman2/quotes/207799045/composite TGT -0.37% has been focused on its small-format stores, which has also created opportunities for getting merchandise into customers’ hands more quickly. Moreover, John Mulligan, the company’s chief operating officer, said on the May earnings call the retailer was also selling more merchandise thanks to the model.