2018 was a tough year for retail giants as a steady stream of retail closures made headlines in last months. Bankruptcy ridden Sears is closing 80 stores by March 2019 as it looks forward to liquidate its assets all over USA. Similar news from Bonton and JCPenney took the retail industry by storm. Owners of malls and shopping centers look concerned as big ticket closures are awaited in the coming year.
Vacancy rate of super-regional and regional malls stood at 8.3% in 2017 which grew to 9 percent in the fourth quarter of 2018 before raising to 9.1% in the third quarter. This has sounded alarming bells in the retail business as this has significantly topped the average vacancy rate of last 10 years of 8.3%. The overall retail closures during the last quarter stood at 10.3%.
As more stores were closed, mall owners seemed to have been able to attract higher paying tenants. The average mall rent increased to 0.2 percent in the last quarter. Some in the industry take this as a positive step as advent of e-commerce prophesized doom for the brick and mortar stores. Mall owners say that the Sears stores were replaced by more profitable and innovative businesses. Trampoline parks, fitness companies and grocery stores are more actively involved in opening new stores.
The American cities with highest retail rent growth included Raleigh-Dunham, Orlando and Austin-Richmond. Cleveland and Salt Lake City saw the biggest declines in the last quarter.
Companies like Victoria’s Secret, Gap and Express are already hinting at more closures ahead. The retail vacancy rates are expected to hold steady. According to reports, in 2018,148 million Sq. Ft of retail space was shut down outpacing the 102 million Sq. Ft in 2017.
For businesses to survive integration to e-commerce seems to be key strategy. While retail stores sales grew by 5% last year, in the same period a 19% increase in online sales was witnessed. Online sales growth was 10.2% for retail stores. Still these stores are trying ways to work with Amazon. Best Buy who struggled to find place in the changing landscape has adopted new strategy of integrating its business to Amazon ecosystem. The partnership with Amazon gives the customer a choice to try the product at a local store with an option to buy it on Amazon.
Retail brand riddled with shrinking revenues in the changing retail landscape. Loss of revenues means that most of them are not able invest either in marketing or in e-commerce.