There must be a balance in the world and if the economy has a strong downswing then it must eventually rise back up. The same can be said for businesses as well, but as more places begin to open up there will inevitably be those who close. At the moment we are looking at a historic number of store closures in the U.S. While last year we tracked a little more than 9,000 store closings, early predictions from Chain Store Age indicate that 25,000 stores could close by the end of 2020. In addition, Chain Store Guide has been tracking both the temporary and permanent retail & foodservice closures across the U.S. and Canada. As of this article, more than 5,000 locations have shuttered due to the coronavirus. As a result of the pandemic, multiple closures in the U.S. are due to direct financial strains from the country wide shut down, but others have closed as certain business strategies have become moot.
Each company has its own story on why COVID-19 shut their doors and it is important to examine them in order to understand how each industry has changed. JCPenney Company, Inc. is an example of a company that was already on a financial slide and was planning to close swaths of stores in 2020. While the virus quickened their decline, the effect is even more dramatic when we look at Pier 1 who had announced half of their stores would close in January and then adjusted that number to all of their locations during the lockdown. These direct COVID-19 closures are combination of industry trends and poor business planning. In the case of Pier 1, the sharp shift in store closures indicates that the company was unable to maintain operations after only a few weeks of revenue interruption and serves as a cautionary tale.
On the other end of the spectrum, we have seen store closures that came from nowhere and were the result of COVID-19’s impact on the industry as a whole. Cracker Barrel acquired a controlling interest in Punch Bowl Social, a concept that focused on large social gatherings, in 2019 which was a sound plan back when the deal was completed. In 2020 that business strategy no longer applied and Cracker Barrel pivoted quickly by divesting from the restaurant. A surprising set of closures came from Starbucks Corporation who closed over 400 stores but did so because of changes within the restaurant industry. The closed stores were profitable before the pandemic, but Starbucks has decided to build new “to-go” locations instead. The company now values a format that focuses on reduced contact and is clearly planning to move forward with that style for years to come. These sentiments have been echoed by restaurants like Chick-fil-A Inc. and Wingstop who have not committed to reopening dining rooms.
As we take stock of these closures and those that will come throughout the year, we must consider what strategies will be most effective in this new environment. Suppliers will need to diversify their client base as stores disappear or transform. One solution is moving towards companies with a strong digital presence, a rapidly growing business strategy, using CSG’s Top Online Retailers Insight (TORI) database. Another strategy for the restaurant sector is going towards foodservice distributors and even wholesale grocers as they have strong purchasing power and a wide market segment.
Furthermore, closing stores results in open real estate, but question remains what kind of businesses will take their place? The new tenants could be familiar chains who have redesigned store and doubled