Whilst everyone is counting down the days to the end of the Covid crisis, the retail industry should brace itself for a huge wave of closures. Analysts from stockbroking firm UBS predict “at least tens of thousands” of store closures as a result of the permanent shift in consumer behaviour; their colleagues in other countries agree.
Worst-case scenario: 150,000 store closures
The analysts fear that at least one in eleven stores in the United States will have to close over the next five years. Office supplies, sports equipment and fashion are the industries that are most heavily threatened by the accelerated rise of e-commerce during the pandemic.
However, those numbers only reflect the “basic scenario”, specialised news site Business of Fashion reports. The worst-case scenario is that twice that number of stores could go under, accounting for as many as 150,000 store closures.
The coronavirus crisis is already making deep cuts in the American retail landscape. A household name like JC Penney had to seek protection from its creditors last year under ‘Chapter 11’ and hopes to make a new start this year following a much-needed restructuring, although many doubt their plans will be successful. The pandemic also was the final nail in the coffin of America’s oldest department store chain, Lord & Taylor, which closed its doors for good last summer.
Shopping malls are an endangered species
The UBS report focuses specifically on the American market, which is characterised by some unique traits which make it impossible to simply transfer the analysts’ forecast to Europe. For example, the majority of store closures in the US would take place in America’s (in)famous shopping malls, and while there are some malls in Europe, that is nowhere near the same scale as in the US.
According to a recent estimate by real estate consultancy Green Street Advisors, there are still about a thousand such malls in the US, but many of them are struggling. More than a third of them bring in less per square metre of retail space than they cost. Until two years ago, Green Street Advisors still expected them to disappear by 2030, but last year that forecast got adjusted considerably: now they predict the malls will fade out before the end of this year. The Covid Crisis is, of course, the main culprit.
Underlying trend affects Europe as well
Yet, it would be imprudent to simply dismiss this prediction as a purely American statistic. The underlying trends are also active in Europe: a German report predicts 80,000 store closures by 2023, while the British are talking about 15,000 stores that have already closed – despite all the support measures like furlough schemes. Consumers were forced to turn to e-commerce during the lockdown periods, and retailers dramatically increased the level of their online shopping experience. As a result, the acceleration of e-commerce is anything but a temporary trend.
According to UBS analysts, only one very specific type of store can rest assured: car service centres, who saw their turnover reach unprecedented heights in the course of 2020. The reason for their “resistance” to the progress of the online segment is simple: when something is wrong with your car, you usually need immediate help, and a mechanic cannot work on your vehicle over the Internet…
