If You're Closing Stores, Gap, Make It Count

(Bloomberg Opinion) -- January is often the time when big retailers announce store closings. With the holiday shopping season over and most of these companies’ fiscal years coming to a close, it’s a good time for them to take stock and prune where needed before embarking on a new year. In 2015, Target Corp. picked January to tell investors it was pulling out of Canada; last year, the month brought news that Walmart Inc. would shutter 63 Sam’s Club locations, eliminating roughly 10,000 jobs. 

This year, though? Not much of a peep. Beyond some news from smaller players – such as Gymboree, which is going out of business, and Chico’s FAS Inc., which will close at least 250 stores – January came and went without any particularly seismic announcements. That doesn’t mean they won’t happen: J.C. Penney Co. said when reporting its holiday sales results that it will provide information on future store closures when it releases fourth-quarter earnings later this month. Gap Inc. CEO Art Peck said in November that revising the store fleet at the company’s namesake chain was “overdue.” So it just may be that in 2019, the announcements may come a little later than usual.

Assuming that’s the case, I have some advice for retail executives considering a major store-closure initiative: Be bold. While I believe brick-and-mortar retail will be around for the long haul, I also think that when we look back on this moment a decade or so from now, we will conclude that many big chains moved too cautiously in reshaping their store fleets. 

The U.S. has more retail square footage per capita than any other country, by a wide margin:

And with the march toward e-commerce, it seems inevitable that many ubiquitous chains are going to see declining store traffic that results in under-performing locations.

Hanging on to weak stores is a real risk. Just look at Sears Holdings Corp.: Its brand suffered  as years of skimpy investments in its physical outposts left it with a fleet of sad-looking stores. Last month, it barely escaped liquidation.

Peck, the Gap CEO, told investors in November that the eponymous chain is seeing healthy growth in its online segment and its outlet stores. But there are hundreds of locations, he said, that “don’t fit our vision for the future of Gap brand” for a variety of reasons, including customer experience and traffic trends. And these stores are weighing on the health of the entire brand.

With the rise of e-commerce, it’s hard to imagine retailers will need the same type of physical presence they once did. John Morris, an apparel industry analyst at D.A. Davidson & Co., wrote in a September research note that, when it comes to U.S. store count, “400 is the new 1,000.” I think that’s essentially correct.

That brings me to J.C. Penney, which has gone from over 1,000 locations in 2017 to 864 in November. That’s a good start, but I hope new CEO Jill Soltau is going to be aggressive in paring that back even further. It’s a survival necessity for this troubled chain.

There are other retailers that I’m surprised haven’t taken more proactive approaches to dumping lackluster stores. Signet Jewelers Ltd. has more than 1,200 Kay Jewelers stores in North America, some of them co-located with the Zales bling chain it also owns. Signet is in the process of closing 200 stores across its various banners, but that's not enough. Pier 1 Imports Inc. has nearly 1,000 stores, despite having a market capitalization of just $69 million (yes, that’s million, with an “m”).

The decision to close stores is far from simple. Some retailers have said that having physical outposts in a given market is important for supporting e-commerce, because it effectively serves as a marketing vehicle for the website and as a returns hub for online purchases. But retailers, particularly mall-based ones, should resist putting off what seems like an inevitable component of their transformation.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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