Big US Retailers Adjust as Business Slows

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Date: Thursday March 20, 2014 11:11:14 am
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    Big US Retailers Adjust as Business Slows
    By David Falchek
    The fall of RadioShack could be seen as an anecdote for American retailing. For a generation, the blue chip shopping center tenant met the needs of consumers in the beginning of the electronic age – audiophiles, ham radio enthusiasts, early computer users all found equipment and knowledgeable advice. Even common household items such as telephones and clocks were on its shelves.

    Earlier this month the retailer announced it would close 1,100 stores – about one in five – on top of 235 closed in 2012, creating another vacuum for the nation's shopping centers.

    The CEO admitted RadioShack was "overstored" in some markets, a question many retailers have asked themselves over the last few years.

    Across America, a retail bubble met a struggling economy, the rise of Internet sales and hollowing out of the middle class.

    Locally, the Shoppes at Montage was never fully leased. Half the Mall at Steamtown, which recently went into foreclosure, is either vacant or occupied by temporary tenants – and Bon-Ton closed its gates for the last time in January. JCPenney's announced it will close its Hazleton location in January.

    RadioShack and Staples, which also announced store closures this month, have yet to announce where closings will be.

    Stores like Gap also scaled back over the last few years. Abercrombie & Fitch will close 180 stores by 2015. Aeropostale will close between 40 and 50 stores. Newly merged Office Depot and OfficeMax is in the midst of closing some of its stores.

    When retail giant Walmart builds new stores, the stores are now smaller.

    In the 1990s through the middle part of the last decade, retailers envisioned an expanding economy, one with slight ups and downs but with a gradual upward trend that resulted in increasing income and consumer spending. They wanted to grow, and get a toehold in hot strip malls, growing suburbs and trendy lifestyle centers.

    Then the Great Recession hit in 2008. Credit, which fueled so much of spending in the form of credit cards and home equity, dried up or was unavailable to many. Unemployment soared. Consumer spending, naturally, plummeted.

    While economists say the recession ended and unemployment dropped, Howard Davidowitz, a New York City-based retail analyst, said the scars remain.

    The new jobs being created tend to be part-time, low-wage jobs that fund subsistence, not shopping sprees, he said. Median household income in the U.S. fell from $58,000 before the recession to $51,000 – a huge loss of spending power. Over the last three years, 95 percent of income growth went to wealthiest five percent of households, he said.

    Luxury goods retailers are happy. But Kohls and Sears are in pain.

    "Retail executives didn't anticipate the destruction of the middle class," Mr. Davidowitz said. "Most stores are geared toward the middle class."

    Depending upon who measures, the U.S. has anywhere from 22 feet of retail space for every man, woman and child to 31 feet, as estimated by Harvard Design School in 2011. By either measure, it's more than twice the retail space of any other nation. The closest is the U.K., with per capita retail space of about 10 feet.

    Right up until economy got shaky in 2007, stores and shopping center were in a never-ending growth mode.

    "We had a frenzy of building and nobody took seriously the threat of online shopping," said Phil Rist of Prosper Insights and Analytics.

    The amount of retail space in the U.S. is "ridiculous," said Mr. Davidowitz.

    There's not enough retail tenants to go around, and shopping centers will close, be repurposed, even leveled to liberate the value of the land and open it for redevelopment. Shopping centers and plazas will likely end up being converted to mixed-use developments with select retail.

    "Somebody, years ago, paid pennies for land to build a shopping center," Mr. Davidowitz said. "Now, that land can be worth more without a shopping center on it."

    Anthony Liuzzo, Ph.D., a professor of business in the Wilkes University MBA program, said the shifts in retailing and changes to landscape are part of the free market economy and nothing to be afraid off.

    "If stores are inefficient, they will go out of business or evolve. If there are too many, some will go away until we have the right number," he said. "Even if retailers were not well positioned for these economic waves, they are responding appropriately now."

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