After the holiday sales are over and year-end earnings tallied, veterans of retail real estate brace for the first-quarter fallout. This is the time of year when retailers that didn't hit their targets announce bankruptcies and store closings. It sets an immediate tone for the rest of the year.
By this prognostic tool, 2007 may turn out to be a good year.
“I don't see any great vulnerabilities,” says George Whalin, founder of Retail Management Consultants, a San Marcos, Calif.-based firm that advises retail companies and suppliers. “I think the number of store closings [in 2007] will be a little less than last year.”
If so, 2007 will see the lowest number of store closings since ICSC began compilingin 2001. Last year was the previous low with 4,073 closings. The first quarter typically accounts for 30 percent to 60 percent of annual store closing announcements. In five of the past six years more than 2,000 closings have been announced during the first quarter, topping at 3,892 in 2001. But during the first quarter of 2007, only 743 stores have been closed as of March 14.
The biggest blow in 2007 has come from computer seller CompUSA, which announced last month that it will close more than half its stores, shuttering 126 of the 229 outlets it operates in the 50 states and Puerto Rico. Meanwhile, Gap, Inc., has pulled the plug on the 19-unit Forth & Towne subdivision, after 18 months of trying to build a new brand for women 35 and older. In addition, the chain plans to close 200 of its Gap brand stores, though it will open 250 new Old Navy locations. Electronics retailer Circuit City has announced plans to close 69 of its 653 locations, but only seven of those are in the United States. And Tweeter Home Entertainment will close 49 stores this year, cutting down its store base from 153 to 104.
But while analysts expect more store closing announcements in coming weeks, there is little concern about retailer bankruptcies this year, Whalin says. Private equity funds have been buying up troubled chains, saving them from bankruptcy. In 2006, the volume of retail buyouts was more than $55 billion, according to Dealogic. “With the current fluidity of capital, many retailers are salvaged by being absorbed byfirms,” says Stanley Eichelbaum, president of Marketing Developments, Inc., a Cincinnati, Ohio-based consulting firm.
The biggest concern for mall owners might be Gap, Inc., which has been struggling to improve its comparable sales figures since 2004. The early year announcements may only be the beginning of a massive repositioning effort, says Howard Davidowitz, chairman of New York-based retail consulting andbanking firm Davidowitz & Associates, Inc. “I think they will close hundreds of stores this year,” he says. Gap has stores in virtually every major mall, with more than 2,600 locations in the United States.
With the housing market faltering, Eichelbaum is also watching for retrenchment among home-furnishings retailers. Pier 1 Imports, which operates more than 1,200 locations, reported that comparable store sales were down 13.7 percent in January, to $110.7 million. For the year ended Feb. 25, comparable store sales declined 7.1 percent.
Another home décor chain, Bombay Company, Inc., posted a 15.5 percent drop in same-store sales in the third quarter of 2006, in its most recentreport, with revenues of $108.2 million. Bombay operates about 500 locations throughout the United States and Canada and announced 74 closings in late March.
Other potential trouble spots include electronics retailers RadioShack and Sharper Image and teen apparel chain Hot Topic, says Davidowitz. RadioShack, which operates 4,467 stores and 772 cell phone kiosks, closed 505 locations in 2006, but same-store sales in the fourth quarter of 2006 still fell 7.7 percent. Same-store sales at Sharper Image, meanwhile, decreased 25 percent in January. The company operates 187 locations.