UBS predicts up to 50,000 US store closures by 2026
In an update to earlier research, UBS said it now expects 40,000 to 50,000 U.S. retail stores to close over the next five years, down from 80,000 closures previously forecast.
The first forecast of closure was made in April 2021.
“There is no doubt that the pandemic has been disruptive in many ways. Yet it has also slowed the disruption plaguing retail (there have been 5,000 net store openings in recent quarters),” UBS analyst Michael Lasser wrote in the report. “Still, we believe store rationalization will continue to move forward.”
The investment firm’s estimated 40,000 to 50,000 store closures over the next five years represent between 4.5% and 5.7% of the estimated 880,000 U.S. retail stores at the end of the third quarter. 2021.
The forecast also assumes that retail sales will grow 4%, in line with the 2002 to 2020 average. UBS also forecast e-commerce to grow from 18% in FY21 to 25% by FY26. E-commerce was previously forecast to reach 27% of total retail sales, up from 18% forecast for 2021.
Lasser cited three reasons for the reduced forecast of store closures:
- Inflation is rising“Retail sales growth has been, and will likely be, strong for the foreseeable future due, in part, to rapid inflation. Retailers recognize sales in nominal dollars, which provides support even if costs are also rising rapidly. »
- E-commerce growth is slowing“E-commerce penetration actually declined in 2021, from 17.9% in 2020 to 17.5% in 2021. annual rate of 100 basis points from 2015 to 2019.”
- Stores show their advantage“Stores have proven their critical role. They are attractive tools for acquiring and interacting with customers. They provide logistical support. They serve as centers of fulfillment. These are important sources of data. Their importance will persist. We assumed that 25% of online sales would come from stores. It could be higher than that. Nonetheless, e-commerce penetration is likely to increase over the next few years, especially as innovations such as social commerce, virtual reality, and automation/robotics advance rapidly.
Yet UBS is seeing the closure of 40,000 to 50,000 stores.
At what UBS sees as the “necessary” closure rate of 40,000 to support the rationalization, the hardest hit retail sector is expected to be office supplies, which is expected to close 2,380 stores by calendar year 2026, or 34% of its store base of 6,908 at the end of the third quarter.
The consumer electronics retail channel is expected to close 7,570 locations, or 17% of its store base of 43,439.
In the sporting goods channel, 2,380 stores are expected to close over the next five years, or 11% of its store base of 22,579 at the end of the third quarter.
Most of the store closures are in the massive clothing and accessories chains with 12,860 planned closures. Similar to the sporting goods channel, the figure represents 11% of the overall clothing store base of 116,188.
The furniture sector is expected to lose 7% of its store base and the home improvement channel is expected to close 1% of its store base.
The number of retail grocery stores is expected to remain about the same as the general merchandise channel, which includes Walmart, Target and Dollar stores. Auto parts stores are expected to post small gains in door counts.
UBS has estimated that stores in closed malls could account for nearly half of planned closures assuming 10-20% are closed or redeveloped. UBS has estimated that there are around 80,000 to 100,000 retail stores in 1,150 enclosed malls in the United States
“Malls are probably better positioned,” Lasser said. “Post-pandemic, sentiment on the relevance of brick-and-mortar retail was probably as good as it has been for over a decade. The potential for future store closures could revive earlier narratives that have weighed on the sentiment of retail REITs in the past.”
In the apparel category, UBS believes the consumer migration to online shopping will continue even after outsized growth in digital sales during the pandemic. The company estimates that online sales in the apparel category will reach 45% by FY26, up from 35% in FY21. Lasser wrote, “We believe retailers with a strong leverage on malls will continue to close stores. Within the Softline players, we expect department stores and specialty retailers to remain net store closers, while off-price retailers are expected to increase their units.
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