Retail space outlook: Things are often bleaker than they appear
1/26/2014 | Real Estate Blog
We may be showing our age, but reports about retail stores, especially large department stores, closing bring the old Yellow Pages ads to mind: Let your fingers do the walking, the soothing voiceover told us. With the advent of online shopping, Americans have taken that advice to heart by avoiding bricks-and-mortar shopping, even at the holidays.
Just a couple of weeks ago, J.C. Penney Corp. announced it would close 33 stores over the next few months, including two stores in the Philadelphia area. Sears and Macy’s stores will close as well. Even retail powerhouses Target and Wal-Mart will close stores. There are more to come, according to retail and commercial real estate professionals.
One expert predicts that shoppers will see as much as a 50 percent reduction in retail space in the next five or 10 years. Another expert warns of a “tsunami of store closings” over the next few years. A retail market analyst suggests that J.C. Penney should really be shedding a few hundred stores if it wants to survive. (The analyst does admit that doing so all at once is impractical.)
More online shopping affects retailers in two significant ways. Obviously, with less foot traffic, leasing massive amounts of floor space makes no sense. But fewer shoppers strolling the aisles means stores can cut back on inventory — so they’ll need less storage space, too. Stores that do not close, then, will likely reduce their footprint.
That could spell disaster for indoor shopping malls. Not only are vacancy rates lagging the recovery, but developers aren’t building upscale or downscale indoor malls. Retailers are choosing outlet malls, outdoor shopping centers and stand-alone stores over the “traditional” malls. Developers are building outlet malls.
The future of bricks-and-mortar retail is not entirely without hope, though. We’ll explain more in our next post.
Source: CNBC, “A ‘tsunami’ of store closings expected to hit retail,” Krystina Gustafson, Jan. 22, 2014