One week ago, when looking at the latest Fitch forecast of retailers most likely to file for bankruptcy next, we listed the hundreds of store closures already announced in 2017 between various bankrupt and still solvent retail chains.
Declining consumer demand for traditional retail venues and deteriorating financial results aside, we showed the simple reason for the persistent pressure on traditional “brick and mortar” stores to restructure with the following chart which showed that North America has a glut of retail outlets, as well as far too many shopping malls, something which is becoming apparent as sales per capita decline. On a per capita basis, the US has roughly 24 square feet of retail space per capita, more than twice the space of Australia and 5 times that of the UK.
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But what about new store openings? After all, on a net basis the US retail industry has to still be growing. Here we have some good and bad news.
First the good news: according to a recent analysts by Bank of America’s REIT team, in which the bank analyzes both store openings and closings for the same sample of 33 retailers that its have analyzed since 2007, it finds that the projected net new store count for 2017 is 1,041, which is lower than last year’s actual 1,109. While the net number of 1,041 openings this year is lower than the 10-year average of 1,386, “nevertheless the numbers are still positive” is how BofA spins the silver lining.
Some more details from the BofA report:
For the group of 33 retailers, we estimated 1,128 net new stores, but the actual figure was 1,109 (a negative variance of -1.7%). Projected net store openings were close to the actual count by year-end. As mentioned, this number is somewhat lower than the previous 10-year average, which we believe is due to historically low levels of ground-up development, as well as caution from retailers who remained focused on margin over market share. Table 2 shows projected vs actual net new store openings for 2016.
In our analysis, net new store openings for open-air formats (strip centers) still appear stronger than malls for 2017. Open-air retailers plan to open a net new 1,111 stores, while in the mall space, retailers plan to decrease the net new store count by 70 stores. The decrease in the mall categories is primarily due to the closing of department store anchors. The stronger net store result of open-air retailers occurred despite a pick-up of store closings in the open-air categories. The store closings were mitigated by a number retailers which actually increased their “open-to-buy” (such as off-price apparel stores). See Table 3 for net new stores by retailer, by year.
Now the bad news: as the following tabl shows, of the 1,041 stores expected set to open in 2017, 80%, or 810, belong to the one retail chain that focuses exclusively on America’s poortest, i.e., Dollar General.
Putting BofA’s findings in context, US retail is still at least somewhat alive, but only thanks to America’s poorest, seemingly a market of still largely untapped growth potential. In fact, of the nearly 7,800 net new stores opened since 2008 per BofA’s sampled data, a whopping 76%, or 5,936, were Dollar General Stores. It seems that in the otherwise gloomy US bricks and mortar industry, a source of tremendous growth continues to shine: catering to America’s growing poor.
As for how Dollar General itself sees the US retail landscape, read “Dollar General’s Startling Admission: Half Of U.S. Consumers Are Feeling More “Dire” Than Ever”
“Growth” reality aside, there is one potential saviour for US “bricks-based” retailers: e-tailers opening more stores. Here is BofA:
We would be remiss if we did not also mention the retailers that once sold their products exclusively online and now occupy their own physical space. This year we expanded our analysis of new store openings to include this group, which we refer to as e-tailers. We first looked at a list of 40 online retailers that once existed only online but now have over 280 stores in the U.S. Then we of those e-tailers that plan to add more stores in 2017 and beyond. These 12 e-tailers include names like Amazon, Warby Parker, Bonobos and Indochino. This group of 12 ended 2016 with just under 200 stores and plans to open another 175+ this year (Table 4). Amazon said it will open as many as 400 bookstores; Warby Parker co-founder Neil Blumenthal said he could envision a future with 800 to 1,000 physical stores, and Bonobos founder Andy Dunn said he plans to have 100 stores by 2020. Indochino, a men’s fashion retailer, currently has 13 stores, and CEO Drew Green plans to get to 150 stores by expanding in top-tier malls like SPG’s King of Prussia. These findings support our thesis that tenant demand remains high for bricks and mortar retail high across a variety of tenants, including those once found exclusively online.
It remains to be seen just how successful such “clicks-to-bricks” conversions will be.
h/t Adam Johnson
I can see this, as a painting contractor we used (three years ago) to paint two new stores a month all over Michigan, Indiana, Ohio and they wanted us to go to Wisconsin as well.
It was a pretty good gig, they paid a set price for each store, then paid for hotel and food as we traveled.
It was a smart move to keep a good crew together that knew the pace of the job, so the extra per diem for travel was a lot cheaper than reeducating new crews.
Each store took two men five days to paint, from the ground to finished each store took sixty days.
I was replace by Jose’ and his crew of miscreants.
Wow! This is wonderful news. Let’s see; if two mid 20 year olds fall in love and get married, each of them can pay off their $30k student loan debt with their $9 per hour (let’s be optimistic) 36 hour per week (let’s be optimistic) job at Dollar General. Then (you know, to establish a little credit) they each will be able to lease a nice new car. After a few months or so of saving they will be able to move out of the wife’s parents house as BofA will tell them they will be elegible for a $275k home. Of course, since BofA is such a kind and caring institution, they will only ask the young love birds for $1500 down for their dream home. No sense making the newlyweds deplete all of their savings, for goodness sakes. Then, just to show the young loves how much they value their trust, BofA will tell them that for the first 5 years of their mortgage the young couple can save their money and possibly make triple payments because after 5 years when they will be baking $9.65/ hr job (let’s be optimistic) their monthly payment jumps “slightly” to $2700/ month. Sounds like the American Dream come true. What a future!!
Went to high school with the DG CEO, small world.
As jobs become more and more automated, does everyone really need a college degree, or would vocational training be better? Someone has to ;earn how to install and maintain all those automated machines.
AS the machines become dominant in the workforce, there will be other machines developed that do the majority of the installation and maintenance.
That will largely remove the need for human workers to serve the machines needs.
People are obsolete, they are no longer needed and will have to start reducing their numbers accordingly to reflect their place in the evolving new world.
I had not been in one for years. I live in Europe and was back at home in Ft. Wayne for a month at Christmas. There is one over by the high school pool where I swim. The pool has great hours and nobody uses it. Sometimes I get the munchies after a long swim and wanted to check out DG’s selection and see why they were so successful with the lower income crowd. The neighborhood was going downhill 40 years ago when I was in high school.
It was real busy catering to all the poor people in the neighborhood. It had more flexible hours than the stores around it. I think it was even open on New Year’s afternoon doing a bang up business. We stopped there looking for tonic water after a walk in the park on New Year’s. It is kind of across and down the street from the stand alone Sears the shuttered its door at least 35 years ago and became an office building.
It is sad that because the US has the privilege of having all the money it needs (reserve currency privilege) by just printing it (no honest money), it makes their own economy/labor uncompetitive. The people with no skills can’t compete with Uncle Sam’s credit card that never has to be paid off. It is just easier to make money than to make goods/services and earn it the “old fashioned way”.
Most people do not understand how the money system works and that it is in my opinion broke. If only we had honest money then things would be more self balancing. The balancing mechanism is gone and things are tipping off to extremes.
I tell people as long as we can print money and the rest of the world gives us stuff for it party on Garth.
Trump will not talk jobs back to the US, the problem is with the money system. It is the same thing in Europe. Germany has like 700 bn Euro in target two balances. There is no way the debtors in Europe will be able to pony up enough goods and services to Germany to pay it back. The Germans might have “credit balances” on a piece of paper…but that is all. There is no productive capacity backing it up to supply the Germans with goods and services in their retirement. Those Mercedes and BMWs the Germans are exporting will turn out to be gifts to the people of the world, since there is no way for the people to return in kind goods and services the Germans want.
Want to know how your Social Security Trust fund is invested? Look at the pictures of the desert bones yards for military aircraft on google. That is where pat of the money was spent. At least they can use the aluminum fuselages to simulate Air Stream trailers since there will be no actual resources to back up the boomers retirement.
It will be interesting to see if they ever reject Uncle Sam’s credit card and to see where this train wreck goes.
Driving back from TN it was interesting to see a DG store even in the smallest towns. There might be one traffic light (or even one stop sign) for the totality of the town, but there was often a DG at that one stop light or sign.
DG must have some genius logistics people – how do you make money selling discount goods in a store in the middle of nowhere? You still have to haul the stuff there, stock the shelves, pay the utilities – it’s kind of amazing when you think about it.
Future archaeologists will be puzzled by the dominant DG religion, with its’ shrine at every crossroads….