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Retailer closures rock malls

By
James Covert
Published Jan. 23, 2014, 6:51 a.m. ET

A giant sucking sound is beginning to fill the nation’s malls, and it’s coming from the direction of Sears and JCPenney.

Sears Holdings said Wednesday it’s shutting down its flagship department store in downtown Chicago, just days after it announced it’s exiting half of its space in Pennsylvania’s King of Prussia mall.

Last week, cash-strapped JCPenney said it likewise plans to shutter 33 of its 1,100 locations this year. Like Sears, it blamed continued losses at those stores, and said Penney expects to generate $65 million in yearly savings.

Sears Chairman and CEO Eddie Lampert — who has been raising cash by exiting many of the retailer’s highest-performing stores, in addition to paring its losers — said the chain has “carefully studied where other retailers went wrong and how they failed to adapt to changes.”

Critics have howled at the notion that Sears has something to teach the competition, noting that Lampert’s relentless cost cutting and asset sales have failed to offset tanking sales and billions of dollars in losses in recent seasons.

But with wallet-conscious shoppers increasingly migrating to the Web, industry experts say retail downsizing is poised to accelerate in the coming seasons.

Indeed, mall-based chains as diverse as Target, Macy’s and Abercrombie & Fitch are expected to exit locations in the future amid dwindling traffic.

“The continued growth of Internet sales will likely force a decrease in the actual size and spaces needed by retailers,” says Michael Wiener, president and CEO of Excess Space Retail Services, a consulting firm based in New Hyde Park, NY.

The nation’s retail footprints will shrink by “a good third or more” as stores retrench after two decades of overheated growth, Wiener predicts.

Looming retreats by Sears, Kmart and JCPenney, will create opportunities for mall owners, according to a Wednesday report by Cowen & Co. That’s because those aging chains, in addition to being less productive, typically pay below-market rents as low as $3 and $5 per square foot.

By comparison, fast-growing off-price clothing chains like TJMaxx, Ross Stores and Burlington Coat Factory typically pay rents of $13 to $14 a foot, said John Kernan, a Cowan analyst, who co-authored the report.

As such, Kernan expects younger, healthier chains will expand more aggressively into malls, divvying up the big anchor spaces vacated by their aging rivals.

Store closings by Sears and Penney alone could number in the hundreds during the next two to three years, Kernan predicts.

“Neither Sears, JCPenney nor Kmart is relevant to the consumer anymore,” Kernan told The Post. “Unproductive retailers need to be replaced with productive retailers.”