If a retail chain is in financial trouble, closing a number of its stores will solve the problem. Right?
Not according to a new report from CNBC, which points out several examples of retailers — including Sears, Aeropostale and JCPenney — shutting down locations in an attempt to reduce sales losses, only to find their sales not improving as expected or even continuing to worsen.
The trend, the outlet attests, cannot be encouraging for Macy’s as it prepares to close 36 of its stores in the wake of a 4.7 percent sales drop during November and December.
The potential upside of chains closing stores — namely, saving money and appeasing worried investors — needs to be weighed against more than the sales losses at those locations. As CNBC explains, a retailer breaking a lease is a complicated process that comes at a serious cost; shutting down a physical location can also have a negative impact on a retailer’s omnichannel operations, as it eliminates a pickup point for customers in the area that purchased online.
“It’s a delicate balance,” Michael Burden, executive managing director at the advisory firm Excess Space Retail Services, told CNBC. “I don’t think any retailers are in real rushes to close their stores.”
Another obstacle to be taken into account by major retail chains that are considering store closures, the outlet notes, is the likelihood that even though the locations on the chopping block are operating at a loss, they are nonetheless sources of revenue. For example, the 40 stores that Macy’s has closed or is considering closing, shares CNBC, represent about $375 million in annual sales.
Anjee Solanki, national director of retail services at Colliers USA, shared with the outlet yet another reason why retail chains ought not rush to shut down stores to solve their problems: Doing so can signal to consumers that the business is in trouble.
“If you start closing stores very quickly, what does that do from a perception standpoint?” posited Solanki. “Certainly, you’ll start to see closures occur quickly, but I don’t think you want to force that … When you have those conversations you’re doing that retailer a disservice.”
A potential middle-ground solution for troubled retailers — rather than choosing between closing down stores en masse or continuing to take losses in perpetuity — that Burden points to is for the chains to close larger locations and move to smaller spaces, something that Target and Kohl’s are doing.