It seems as if every few months we?re treated to a list of store closings by Sears. I?ve noticed in the past they?ve mainly closed stores located in rural areas or in very small cities. But this year they?ve taken to closing stores in prime locations. So, we weren?t surprised to read that the Sears in our local mall is closing this month.
On a personal level, this is hardly an issue. We?re not a Sears family. The one purchase I made at Sears in the past few years was a poor experience, and I never went back.
But that doesn?t mean Sears closing our local store isn?t a concern. It?s one thing when an over-priced mall boutique store closes. But when an anchor store closes, the viability of the entire mall is at stake. And for that matter, so is the general community.
What Will Replace Sears at the Local Mall?
Our mall has three anchor stores, Sears, Macy?s and JC Penny. In truth, Sears hasn?t been a major draw, at least not like the other two. But that doesn?t mean its departure will be without consequences.
The central question is who will fill the cavernous space the company is about to abandon?
There?s a fundamental problem with the closure of mall anchor stores. The companies that would take their place aren?t expanding. Competitors that might be expected to move in, like Nordstrom and Dillard, aren?t opening new stores.
One option would be to subdivide the store into smaller units for ?in-line? stores. But a lot of the popular mall retail chains have been closing stores as well. It?s unlikely subdividing the space will prove successful.
The bottom line is that the Sears space could sit empty?for years.
An empty anchor space is mall poison. It usually leads to smaller stores closing, due to reduced mall patronage. It?s even possible for an entire wing of a mall to turn into a dead zone.
We saw that happen with our local mall in Alpharetta, Georgia, when a couple of anchor stores closed during the Financial Meltdown. After the anchors went, entire hallways emptied out. One wing was boarded up and painted with happy scenes of local life. But the spaces were devoid of human activity.
The overall balance in the mall has been on the edge for several years already. One store closes, another opens up, but then yet another closes. There are always empties, especially after the holiday season.
For example, the mall used to have an A.C. Moore. They closed, and the space sat empty for a time. Then Glow Golf took over the space. They lasted two years, and now they?re gone. That?s been the pattern.
The Impact of the Sears Closing on What?s Happening Outside the Mall
Our mall is the center piece of a regional shopping district that contains hundreds of stores. This is a common arrangement throughout the country. I don?t know what?s happening in your area, but there?s been a noticeable trend of retail store fronts going dark. It isn?t like a tsunami, but more like a slow creeping rot. Something like for every two stores that open, three close down.
Tragically, either new buildings are constructed, or old buildings are substantially remodeled. Stores vacate old, unrennovated buildings in favor of the new and improved ones. The old buildings sit empty. Two years ago, a grocery store pulled out of a strip mall about a half mile from the mall and that center has gone dead. Other storefronts in the surrounding area have similarly closed shop.
It?s as if a blight has hit the north end of the shopping district, and is slowly working its way south. But the mall sits on the southern end of the district, and we have to wonder if the lights are starting to go out from both directions. Time will tell.
The Factor that Makes this Worse than it Seems on the Surface
On the one hand, we can look at Sears and declare that they brought it on themselves. In fact, we can say that about retail in general. They?ve over-expanded, and many are using out-dated business models, and not keeping up with the times.
The over-expansion point is especially relevant. The US has more retail space per capita than any other country in the world, and by a wide margin. For example, we have more than 10 times the retail space per capita of Germany, and 50 times that of China. It?s no wonder Amazon and other online sellers are eating the retail chains? lunch.
But that doesn?t mean we should cheer retail?s demise.
There are three factors in particular we need to be concerned about.
The Retail Implosion is Happening During a Theoretical Economic Expansion
The US is going through a full-scale retail apocalypse. This is not to be under-estimated. Though we see it play out as the gradual closing of a few stores each year in our local areas, the reality is that thousands of stores are closing nationally every year.
What makes this particularly disturbing is that it’s happening nine years into a theoretical economic expansion. I say ?theoretical?, because the decline of retail, as well as other industries, calls the strength of this recovery into question.
What we mostly seem to have is a financial expansion. The financial markets are certainly growing, and real estate prices have staged an impressive recovery, albeit on much lower volume then was the case before 2008. And of course, the health care and education juggernauts continue to grow as if they are not in any way limited by the laws of physics.
But just about every other area the economy seems to be in some level of distress. The statistics on the rise in people living paycheck-to-paycheck bears this out.
We have to wonder what will become of the retail decline when the economy enters an official recession. What now seems to be a controlled decline could turn into a full-scale contagion, and that will have economic consequences.
The Economics of Retail?s Decline
If it weren’t for the economic fallout, the decline of retail might be nothing more than a long overdue and interesting phenomenon. But what I see happening in our own local mall district is more than a bit disturbing.
Empty stores mean landlords aren?t getting rents. They may continue to pay the debt service and real estate taxes for a time. But if a store or a strip mall sit empty for a year or more, the capital dries up, and foreclosure becomes a real threat. When that happens, the city and county lose tax revenue.
Then there?s the blight factor. As a shopping district empties out, people stop going there. It becomes an urban ghost town. It?s bad enough when it?s a few strip malls and free-standing stores that sit empty. But when a mall goes down (and eventually out) it can pull down an entire retail district. That can also hurt adjacent residential neighborhoods, particularly apartments economically linked to the shopping district.
The once bustling shopping district becomes a waste land, often dominated by unsavory elements, like rampant drug activity.
The good side of foreclosure is that empty properties are eventually sold at a much lower price, creating more options for low cost business operations. But that?s a slow transition, not to mention the obvious question of what kinds of businesses will occupy all that vacant space?
In a world increasingly dominated by online and service businesses, there doesn?t seem to be a need for all that physical space. Tearing it down may be the best option, but where are the money and motivation to bring that about?
The Impact of the Retail Decline on Employment
I’ve saved the worst news for last. About 16 million Americans work in retail, which is more than 10% of the total workforce.
A 50% decline in the retail industry could see 8 million people lose their jobs. 50% may seem like an exaggeration, but once again be reminded that the retail decline has happened throughout a nine-year economic expansion. When the economy begins the tank ? and it will ? the retail decline is likely to turn into a full-scale implosion.
There’s also the technology factor. Already, as cities and states move to increase minimum wage levels, retailers are replacing people with machines. Think self-service drink machines in fast food restaurants as but one example. Retail employment is facing pressure from two sides ? closing stores, and increasing technology.
The optimists will say that those millions of people will simply have to ?redeploy? elsewhere in the economy. But the question is where, especially if the general economy is declining. Not everyone will be in a position to transition effortlessly into education and healthcare.
I?ve been in that position of needing to change careers in the middle of a recession, and I can tell you from personal experience that that redeployment thing is heavily over-rated, despite how warm and fuzzy it feels to economists when they utter it.
As well, we can?t ignore two other obvious realities of retail employment:
- Retail serves as a point of entry to employment ? a first job ? for millions of people. Where will new entrants to the job market start as retail flames out?
- You know that redeployment thing? It often brings people into retail. What?s often forgotten is that retail has served as the employer of last resort for millions of people fleeing other industries.
In the End, the Sears Closing is a Sign of a Much Bigger Phenomenon
It’s not my purpose to get sentimental about the closing of a single Sears store, even if it is happening in hundreds of communities across the country. But it’s more to open a discussion on what the demise of Sears symbolizes, and what it implies for the future.
As the economy increasingly financializes and goes cyber, what?s left of what we used to call the real economy continues to decline. We’ve already seen it happen with farming and manufacturing. Now it’s extending to retail in an almost logical progression. And it’s doubtless there are other industries facing the same fate, but too small to make front page news.
Cheatsheet.com recently put out a list of the 15 worst companies in America to work for. It should surprise no one that 11 of the 15 are retailers. When a company or an entire industry are in decline, working conditions are poor. And the way retail is going, employment looks destined to get even worse going forward.
This article is a call to anyone who works in retail to be intentional about making other arrangements before things start to get really ugly.