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Retail Apocalypse? The Sky Isn't Falling -- The Sector Is Just Evolving

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Never let the facts get in the way of good click-bait it would seem. As some continue to traffic in the sensationalism of the retail apocalypse narrative – others are beginning to question the veracity of it. But let’s parse out the facts from the fiction and look at the data, shall we? JLL research recently did a deep dive on the latest round of store closures, and yes, the openings too (please try to contain your shock).

More than 5,300 stores are expected to close by the end of 2017.

Ten states will make up just over half of the closures.

Apparel and electronic stores will account for nearly half of 2017 closures.

Changing consumer demographics and a shift in taste towards discounters and fast fashion, and yes, some e-commerce penetration, have all contributed to the apparel store softness of late. Bankrupt retailers like The Limited, Wet Seal, BCBG Max Azria and American Apparel are high on the store closures list. As are bankrupt electronics stores like hhgregg and Radioshack.

In fact, more than half of all closures are due to bankruptcy – which means that healthy retailers are hanging on to their stores for the most part.

One of the categories that has been the most adversely impacted by online penetration are office supply stores which sell highly commoditized products. Additionally, it is a pretty consolidated space to begin with and the purchase of Office Max by Office Depot is leading to the closure of redundant locations.

But before you say see, it really is the retail apocalypse – there are more stores opening than closing.

Despite the headlines, mall occupancy is strong.

Wireless and Dollar stores are planning the most aggressive expansion.

The reality is that stores close – it’s a part of this business. Consumer's tastes have always fluctuated, but with the rise of the internet and social media, the rate of change has been expedited. As a result, brands and categories fall-out of favor much faster, which initiates the open/closure cycle more rapidly. There is no doubt that e-commerce penetration, especially in certain categories, has also contributed to this exacerbated pace of change – it’s just not the great "disruptor" that many would have you believe.

Looking ahead, the customer will continue to demand greater experience from their physical store interactions – as e-commerce will continue to be a channel geared solely to functionality.  So the stores that can combine convenience and value with great experiences will continue to win, those that don’t – will close. Expect physical stores to become more fluid in the transaction process, e.g. less waiting in cash-register lines. They will also take on more of a showroom feel, with meticulously curated products to enhance the browsing experience. There will also be a greater emphasis placed on connecting with the customer through interactive environments designed to entertain – not purely sell.

So the next time someone tells you the retail sky is falling, you can say now, now Chicken Little – it’s actually just evolving.