4 retailers likely to close stores this year
STEPHEN LAM / Reuters
Best Buy has seen a 1.4 percent decline in same-store sales year over year.
It is the time of year again when America’s largest retailers release those critical holiday season figures and disclose their annual sales. A review of these numbers tells us a great deal about how most of the companies will do in the upcoming year. And while successful retailers in 2012 may add stores this year, those that have performed very poorly may have to cut locations during 2013 to improve margins or reverse losses.
For many retailers, the sales situation is so bad that it is not a question of whether they will cut stores, but when and how many. Most recently, Barnes & Noble Inc. decided it had too many stores to maintain profits. Its CEO recently said he plans to close as many as a third of the company’s locations.
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Several of America’s largest retailers have been battered for years. Most have been undermined by a combination of e-commerce competition, often from Amazon.com Inc. and more successful retailers in the same areas. Borders and Circuit City are two of the best examples of retailers that were destroyed by larger bricks-and-mortar competition and consumers transitioning to online shopping. These large, badly damaged retailers could not possibly keep their stores open.
Currently, the best example of a struggling retailer is J.C. Penney Co. Inc. The department store chain's third-quarter revenue dropped more than 26 percent year-over-year, and its same-store sales fell by about the same. With J.C. Penney’s e-commerce sales slipping by an ever greater amount, it was left with nowhere to go for bottom line improvement other than deep cost cuts.
Store closings can bring a retailer some relief and may not always portend its demise. Gap announced in 2011 it would shutter 21 percent of its U.S. store base. It has since transformed itself into a much more successful clothing retailer. As the retailer completes the process of downsizing, its store operations likely will become even more efficient and its margins greater.
Very few retailers get into sudden trouble. Chains like Kmart and RadioShack Corp. have struggled for years just to stay in place. Their brands have lost much of their luster. Their stores have become old and their locations no longer attractive. The consumer’s perception is that the products they sell can be found elsewhere, usually at a cheaper price, and at retailers with better customers service and wider selections of products.
24/7 Wall St. reviewed the weakest large U.S. retailers and picked those that likely will not be profitable next year if they keep their current location counts. 24/7 analyzed the retailers' store counts, recent financial data, online presences, prospects against direct competitors and precedents set by other large retailers that have downsized by shuttering locations. We then forecast how many stores each retailer will have to close this year to sharply increase its prospects financially, even if some of those location closings do not occur for several years. These forecasts were based on drops in same-store sales, drops in revenue, a review of direct competitors, Internet sales and the size of cuts at retailers in the same sector, if those were available.
These are the retailers that will close the most stores in 2013.
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1. Best Buy
· Forecast store closings: 200 to 250
· Number of U.S. stores:1,056
· One-year stock performance: -36.8 percent
The holiday season was rough for Best Buy Co. Inc. Same-store sales declined by 1.4 percent year-over-year, with international stores posting a 6.4 percent decline while U.S. same-store sales were flat. Companywide, the electronics retailer reported that holiday revenue had declined to $12.8 billion from $12.9 billion the year before. In the most recent completed quarter, during which same-store sales declined 4.3 percent, the company reported a loss of $0.04 per share. Best Buy has been plagued by customers “showrooming” -- looking at products in the store and then purchasing them online -- in recent years. Speculation persists that former chairman and founder Richard Schulze may buy out the company.
Related: Best Buy to close 15 stores in Canada
2. Barnes & Noble
· Forecast store closings: 190 to 240, per company comments
· Number of U.S. stores: 689
· One-year stock performance: 8.95 percent
The move by customers away from print books toward digital books has hurt Barnes & Noble Inc.. Same-store sales during the nine-week holiday season fell by 8.2 percent year-over-year. The bookseller has tried to offset the declines in physical book sales with its Nook e-book reader device, but sales of that device fell 13 percent compared to the previous year. The company already has begun cutting down the number of its stores in the past several years. In a recent interview with the Wall Street Journal, the head of the retail group at Barnes & Noble said he expected the company to have just 450 to 500 retail stores in 10 years.
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3. Sears Holding Corp.
· Forecast store closings: Kmart 175 to 225, Sears 100 to 125
· Number of U.S. stores: 2,118
· One-year stock performance: 8.8 percent
Both Sears and Kmart have been going down the tubes for a long time, steadily losing their middle-income shoppers to retailers such as Wal-Mart Stores Inc. and Target Corp. Sears Holdings Corp.'s same-store sales have declined for six years. In the most recent year, same-store sales at the namesake franchise fell by 1.6 percent and at Kmart by 3.7 percent, compared to the year-ago period. The company is already in the process of downsizing its brick-and-mortar presence. In 2012, Sears announced it was shutting 172 stores. CEO Lou D’Ambrosio is leaving the company in February, to be replaced by chairman and hedge-fund manager Edward Lampert. Lampert has minimal operating experience in retail management.
4. J.C. Penney
· Forecast store closings: 300 to 350
· Number of U.S. stores: 1,100
· One-year stock performance: -53.6 percent
J.C. Penney has gone through a rough stretch recently. In the most recent quarter, same-store sales fell by 26.1 percent compared to the year-ago period. Even Internet sales, which are increasing significantly across the retail sector, have taken a turn for the worst, falling 37.3 percent in the third quarter, compared to the prior year. J.C. Penney sales have taken a turn for the worst since former Apple Inc. retail chief Ron Johnson took the helm at the company. Johnson’s plan, among others, has been to wean customers off of heavy discounting and simply give customers low prices. However, retail strategists and analysts have argued that Johnson’s plans have created confusion among customers and has been a further setback to any potential turnaround.
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