It's Survival of the Fittest for Retail Stores
MELISSA BLOCK, host:
Retailers did not fare well in that employment report. They cut thousands of jobs in April and a shopping center trade group predicts store closures will increase by 25 percent this year. It would be easy enough to blame a weak economy, but as NPR's Wendy Kaufman reports, it's more complicated than that.
WENDY KAUFMAN: University Village in Seattle is a decidedly upscale shopping center in an area flush with high-tech money. But even here, explains University of Washington Professor Mary Ann Odegaard, there's evidence the retail environment is changing. Take the sign pointing the way to various stores; the sign has been altered.
Professor MARY ANN ODEGAARD (University of Washington): You see Lucky Brand Jeans, Fran's Chocolates, Aveda. They scratched out Abercrombie & Fitch and Ann Taylor. Let's go that way.
KAUFMAN: We cross the parking lot and head toward the outdoor fountain.
Prof. ODEGAARD: And now those are the boarded up stores right there.
KAUFMAN: Abercrombie, with its clothes for teenagers, probably wasn't a good fit for this retail center, so the closure makes sense. But the Ann Taylor store is just one of more than 100 stores the retailer plans to close. Other companies which have announced large number of closures include Linens-N-Things, Foot Locker, Zales, and Lane Bryant. Odegaard, who teaches at the Foster School of Business, says many retailers expanded too far and too fast.
Prof. ODEGAARD: As the economy was growing, they kept on opening more and more stores with the idea that actual sales growth would catch up, and all of the sudden in the last six months the picture's changed drastically.
KAUFMAN: A bit of background here. In recent years developers began to build vast amounts of retail space, hoping for the high rent that retail typically commands, but in the process they overbuilt. Some experts say that since 2005 developers have created more than twice as much retail space as needed in some markets. Who filled up all those stores? Sometimes it was companies like Eileen Fisher or Lucky Jeans, that wanted to move beyond department stores and go out on their on. Sometimes it was niche products like high-end baby furnishings. Or sometimes, as retail consultant Harry Friedman explains, it was a way for publicly traded companies to drive growth and increase their stock price.
Mr. HARRY FRIEDMAN (Retail Consultant): So instead of looking for same store growth, which is now my store is doing 10 percent more than it did last year, they concentrate on delivering those profit dollars to addition of additional stores.
KAUFMAN: In the process, they often cannibalize themselves. Moreover, says Friedman...
Mr. FRIEDMAN: You wind up with more stores that are making less profit, so they become much more volatile. If the swing is that they're not going to make much, then they're very, very close to making nothing and losing.
KAUFMAN: At the same time that retailers were expanding like crazy, big-box stores, including Walmart and Costco, continued to gain customers. And Internet sales took off. Fast forward to late 2007 and 2008. Consumer confidence has plunged. The prices retailers have to pay for goods and services have gone up, while credit for businesses, including retail, has become tighter.
Daniel Ansell, who heads the real estate practice at Greenberg Traurig, says the result is a kind of retail Darwinism.
Mr. DANIEL ANSELL (Greenberg Traurig): Those businesses that have a product that consumers desire will do well regardless of market conditions, and those who do not will struggle.
KAUFMAN: Consultant John Moore, who calls himself a marketing medic, puts it slightly differently.
Mr. JOHN MOORE (Consultant): Not all brands, not all businesses are meant to live forever. Let it go. Let someone else come in who can fill that need better.
KAUFMAN: In recent months Bombay Company has gone out of business. Gadget seller Sharper Image is now in bankruptcy, looking for a buyer.
Wendy Kaufman, NPR News, Seattle.
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