Analysts at investment bank UBS are forecasting that some 50,000 U.S. stores are likely to close by the end of 2027, because of expected cutbacks in consumer spending, tighter credit and the continued shift to ecommerce.
Store closings could accelerate to 70,000 to 90,000 if retail sales turn out to be weaker than expected, according to UBS.
The United States gained stores in 2021, adding a net total of about 11,000 new stores. Last year, the country returned to the previous pattern of shrinking store counts, with 1,500 store closing as of the third quarter of 2022, according to UBS.
The pace of store closings has already accelerated this year, UBS said, with small chains and mom-and-pop stores being most at risk in the current economy. As of 2020, more than half of retail stores were operated by companies with fewer than 20 employees, and 68% of stores were operated by chains with less than 500 employees
The store-closing forecast is based on the assumption by UBS analysts that ecommerce penetration will increase from 20% currently to 26% by 2027. UBS calculates that every 100 basis point increase in online percentage of sales triggers about 8,000 store closings.
Banks are showing they are less willing to make consumer installment loans, which will hurt consumers’ ability to spend. UBS also expects there to will less capital available to allow entrepreneurs to open new retail stores.
Higher costs, particularly labor costs, also will drive store closings, UBS said. “Notably, despite all the automation in retail over the past several years, employees per store has increased for several retail sub-sectors,” according to UBS.
Home improvements stores had an average of 21 employees per store in 2021, compared to 16 in 2012. Electronics, home furnishings, auto parts, grocery, and sporting goods stores also have reported increases in average numbers of employees per store.
The retail sectors expected to have the most store closings, according to UBS, are clothing and clothing accessories (approximately 14,000); consumer electronics (some 9,000 closings); and home furnishings (4,000 closings).
Smaller number of closings are forecast for the home improvement and general merchandise sectors, and the number of auto parts stores is expected remain steady.
In-store fulfillment of online grocery orders is expected to help keep physical grocery stores open.
Since 2018. clothing stores have had the most store closings (down 10,500), followed by consumer electronics stores (-3,000) and sporting goods (-1,300).
Over the next five years, shopping center growth is expected to be limited, and thus will not contribute to store growth.
While the number of shopping centers continued to grow modestly in 2022, UBS believes the number of U.S. shopping centers, and the amount of shopping center square footage, have peaked, meaning mall-based stores face the greatest risk of closings.
The shift in malls toward more food and non-retail tenants will also contribute to store closings, UBS said.
“Even for malls that remain open, we believe there will be a shift away from retail to non-retail establishments, leading to retail closures,” the report said.
If 50,000 stores do close by the end of 2027, that could mean some $285 billion in retail sales would be “up for grabs”, and could benefit the best-positioned big retailers, UBS said. WalmartWMT +0.1%, Home Depot, and Costco have the potential to attract $210 billion in sales if store closings reach the forecast, according to UBS.
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