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5/8/2017 6:49:00 AM
What's next for brick & mortar retailers?

Danielle Grady, News and Tribune

In case you haven’t heard, the retail world is ending as we know it.

The so-called “retail apocalypse” has caused thousands of brick-and-mortar stores across Indiana and the United States to announce closures in 2017. And more are expected.

Brokerage firm Credit Suisse is predicting that 8,600 stores will shut down by year’s end. For comparison, only 2,056 stores closed in 2016 and just 6,163 shut down in 2008 at the height of the recession.

The retailers behind the closings are varied: Payless is shutting down 400 stores; Rue 21, 400; Sears Holdings, 150 Kmart and Sears stores and — more recently — 50 auto centers and 92 pharmacies; JC Penney is closing 138 stores; Macy’s, 68 — and there are more.

The ones listed above are simply shutting down some of their brick-and-mortar locations. Other retailers, such as the Indiana-based HHGregg (closing 220 stores), have filed for Chapter 11 bankruptcy and are liquidating all their locations. And then there are the shops, such as Bebe, with approximately 170 stores, that are transitioning to online sales only.

The announcements have left some Indiana cities with multiple empty storefronts.

In Kokomo, three large retailers have decided to leave town. The Sears, a Markland Mall mainstay, recently removed its letters that adorned the outside of the building. MC Sports also vacated the shopping center, and the city’s HHGregg is in the midst of selling its assets.

But for all “the ceiling tiles are falling” hysteria, John Talbott thinks the recent closings are more a sign of the dawn of a new retail era than a shopping Armageddon.

Reasons behind closings

Talbott is the director of research at Indiana University’s Center for Education and Research in Retailing. He envisions most brick-and-mortar stores changing the way they operate instead of disappearing entirely.

He partly chalks up the reason that so many retailers are closing locations right now to previous rushes on their part to open as many storefronts as possible.

There’s pressure for companies to demonstrate that their sales, or top-line, are growing, he said. If those retailers discover that several of their stores are underperforming, it can be hard for them to extract themselves from their leases without resorting to bankruptcy.

For those that do close, “It’s possible that some of them perhaps will pop up again,” Talbott said. “We’ll see their names again under some different financial entity, and they’ll have a smaller number of stores and an e-commerce capability perhaps as well. And they’ll survive.”

Other stores might fight their way back to stability by doing what Talbott calls “right-sizing.” That’s when a retailer whittles their store numbers back to a sustainable amount.

But an oversaturated retail market hasn’t been the only thing pushing some retailers down their personal fiscal cliff. The rise of online shopping also has contributed to recent store closures, according to Talbott.

E-commerce has grown an average of $40 billion each year of the last three years.

“Many companies were just late to the party in terms of really focusing and developing their online business,” Talbott said.

E-commerce still only accounted for 8.3 percent of total sales in the U.S. during the fourth quarter of 2016, however, so expect physical stores to evolve, not vanish entirely.

The way those stores might change could ease the effects store closings are having on their communities.

Pain and gain

Talbott doesn’t deny that closings in some cities might be painful losses. There are fewer jobs for the taking when shops shut down, and stores pump money into their communities.

Retailers contribute to government coffers through taxes, and commercial property taxes are typically higher than those for residential developments. That’s the case in Clarksville — where the “economic backbone” of the town is retail, said Dylan Fisher, Clarksville’s redevelopment director.

“We benefit greatly from our financial stability as a town by having higher-level commercial uses than if it was all single-family residential,” he said.

Then there’s the blight that an empty building or storefront can create.

Talbott believes that the overall number of outlet malls in the United States, such as Edinburgh Premium Outlets near Columbus, will likely decrease in the years to come. Malls, in general, seem to be in trouble. Visits to them declined by 50 percent between 2010 and 2013, according to a Cushman & Wakefield study.

But Talbott also thinks that many empty retail spaces will find new uses. Online shopping hasn’t eliminated the need for physical stores, but it has made some more showroom-like.

We live in a world where some shoppers go to stores to check out products, only to buy them on the internet after returning home. Consumers also have the capability with smart phones to purchase items without interacting with a cashier.

With that reality, why create a store where customers can look at stuff, try it on and then have it arrive at their door the next day, Talbott asks.

That might make stores smaller, but they’ll still be around, Talbott said.

Kokomo seems to be following that trend as its mall plans to subdivide its former 105,000-square foot Sears store into seven smaller shops.

Talbott also envisions malls accepting more experience-driven tenants. It’s already happening — and not just in places like California or New York. A former vendor mall in Clarksville plans to open a 43,000-square foot family fun center with bowling, laser tag, bumper cars and more later this month.

New mix of shops, jobs

Trends like this and Clarksville’s commitment to making the town an attractive shopping destination keep Redevelopment Director Fisher confident that the town will weather retail’s current moment of instability — even as its HHGregg and Sears Auto Center prepare to close.

“We don’t think Clarksville as it is today is going to change drastically over the next 10 years, as far as the retail corridor, but we anticipate probably the users you see are going to change a little bit just as the retail market continues to change,” he said.

Many Indiana communities also rely on more than just retail.

In Howard County, where Kokomo is, manufacturing is the biggest employer, said Alan Krabbenhoft, the dean of Indiana University Kokomo’s School of Business. That’s consistent with the rest of the state, where durable goods manufacturing rules.

Distribution centers for online-focused retailers, such as Amazon, also pepper Indiana’s landscape — appearing in Jeffersonville, Plainfield, Whitestown and Indianapolis and employing many. The e-commerce company has 9,000 full-time and year-round employees in Indiana and plans to add 100,000 more full-time jobs in the U.S. by 2018.

Even Kohl’s, a more traditional retailer, plans to hire 900 workers in Indiana over the next three years with the creation of a 937,000-square foot e-commerce fulfillment center in Plainfield.

There’s no large fulfillment center like that in Kokomo, but the city does have a newly revitalized downtown, Krabbenhoft said.

He anticipates an uptick in the city’s unemployment rate as a result of the recent store closings, but he remains hopeful that even that can be overcome with boutique and factory employers.

“I think there are some really great opportunities,” he said.

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