Doors Open, Doors Close

First, the leader watched a slew of downtown big-box stores close. Then her favorite clothing store decamped to online-only. And a department store shuttered. What’s it take to stay in business as a brick-and-mortar these days?

It’s not your imagination that store closures are up: 80% more shut down in 2023 than in 2022, according to data from Coresight Research. Sometimes those closures are for stores that seem to be bustling, confusing to bystanders and experienced businesspeople alike. “It’s very easy to conflate what’s happening,” says retail consultant John Long, senior client partner at Korn Ferry.

But these store closures do not spell doom and gloom for retail, say experts, especially in America—which has far more stores per capita than any other country (the industry has a term for it: “overstored”). Nearly 5,500 US stores opened in 2023, and retailers made good use of those that had newly closed. For example, 40 former Bed Bath & Beyond stores were repurposed as Burlington Stores (which had previously taken over spaces left vacant by Sears and Kmart).

As neighborhood demographics shift, even successful stores might move locations in search of more or less space. For instance, neighborhoods that might have teemed with kids twenty years ago may now be home to many seniors—a change which surrounding retailers will adjust to. “It’s common and normal for retailers to close or relocate stores,” and not necessarily a sign of stress, says Craig Rowley, senior client partner at Korn Ferry.

Retailers have always sought to align brick-and-mortar locations with traffic and product. This is even more true now, with online retail accounting for more than one-fifth of worldwide sales, a number that jumped during the pandemic. “A lot of the brick-and-mortar changes we’re seeing now are in response to that,” says Long. Simply put, many stores needed to tinker with their balance of online and in-person, and some had been waiting to pull the trigger. Copycat behavior is also at play, as one competitor’s closure can inspire another’s. “Depending how investors react, it gives other retailers confidence,” says Long.

At the same time, two other factors are changing the brick-and-mortar game. Firstly, loyalty programs have mushroomed, providing retailers with substantial data about their best customers and people like them—such as where best to locate outlets. Secondly, increased operating costs related to labor, taxes, rent, and crime are tipping some seemingly successful stores into non-profitability. For example, a store might be profitable when $12 per hour is sufficient to draw in entry-level local labor, but not if the market calls for $16. “The margins of retail are relatively small, so it doesn’t take much for a store to no longer be viable,” says Rowley. Stores will continue to open and close as retail executives figure out an equation for success. “It’s about being in the right place to get traffic, with the right products, at the right service level for that customer,” he adds.

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