I love to fish. My wife and I are avid saltwater fishermen here in the waters of South Louisiana, and we spend our summers catching all manner of saltwater species, feeding ourselves and our employees, friends, and neighbors with the freshest of just-caught seafood.
What has changed dramatically for me over the last 20 years is the way I go about buying all my saltwater tackle and accessories. Let’s face it: I no longer need to get into my truck and drive to the local outdoor sports outlet to buy fishing line, hooks, or any of the other items we need to be well-equipped for a weekend on the water. As long as it is no later than Wednesday, I click on a few items on Amazon, and they arrive at my front door by Friday, ready for our weekend.
It is these behaviors of millions of consumers like me that are changing the face of brick-and-mortar retail. It seems like every time there is even a hint of a slowdown in the economy, and the Chicken Littles come out of the woodwork, a retail chain announces multiple closures or, even worse, a complete shutdown of their store network. Of course, this looming reality has been predicted for a couple of decades now as the growth of online shopping overtakes the brick-and-mortar industry.
The headlines these last few weeks have been the bankruptcy of Bed Bath & Beyond, a staple of household goods retailing for decades now that has hit the wall in the face of the seismic shift in retail consumption. In the last recession, we lost Sports Authority, Circuit City, Linens ‘N Things, Toys “R” Us, and so many more. More recently, mega-retailers like Sears and Kmart have also succumbed. They all failed because of the onslaught of the mouse click that has changed the face of retail forever.
And now, a new research report from investment bank UBS foreshadows other retail busts in the years ahead, and underscores the implications of the costs related to operating retail stores, such as leases in top malls and hourly worker wages. UBS estimates that a stunning 50,000 retail stores will close out of the current base of 940,000 stores by 2027, excluding gas and food service stations. The report notes that the very strong economy placed a pause on store closures over the last few years, but now believe closures are set to sharply accelerate moving forward. The retail sectors that will see the most closures are expected to include clothing accessories and consumer electronics stores, at an estimated 23,000 combined. Several key drivers are pressuring these looming closures: they include a slowdown in consumer spending as activity shifts to services, a reduction of credit availability, the obviously rising penetration of e-commerce shopping, and the increasingly higher costs to operate retail stores.
But there is a silver lining to this trend, as we have to understand that retail will not shrink dramatically, but rather those retail dollars previously spent at stores that close will now be re-directed. As weaker retail chains such as Bed Bath & Beyond vanish from the landscape, market share will further shift to strong national players. The report calculates that if 50,000 stores close over the next five years and that the average sales per store is $5.7 million, it would translate to $285 billion of retail sales up for grabs. The report assumes that 26 percent of these sales go online, so it suggests large national chains like Walmart, Home Depot, and Costco have the potential to haul in $210 billion in additional sales.
The post-World War II landscape saw the advent of the modern American suburb, with neatly arranged subdivisions and the invention of the retail mall and other brick-and-mortar shopping venues. This development activity has been a critical component of the ever-rising concrete volumes of the past 75 years. Going forward, this component of our industry’s business mix will diminish, but will be supplanted by the ever-increasing construction of massive distribution centers to supply America’s retail consumption. While the face of retail is changing forever, our industry will continue to benefit from the shift in retail habits.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter – @allenvillere.
