To curtail continuing declines in sales per square foot, retailers need to rationalize nearly 1 billion square feet of U.S. store space by closing stores, converting retail space for other uses or reducing rents, according to a report from commercial real estate research firm CoStar Group.
At the beginning of the last decade, a basket of publicly traded retailers researched by CoStar Portfolio analysts enjoyed sales of more than $350/square foot. Those same retailers now generate sales of less than $330/square foot.
As sales per square foot were declining from 2000 to 2008, retailers expanded their store space at the pace of annual averages of 160 million square feet of added space, according to CoStar. That translates to 24 square feet of U.S. retail real estate per American citizen, compared to just 16 square feet per Canadian, according to data from real estate investment management firm Clarion Partners cited by Bloomberg.
While the Great Recession halted the unsustainable expansion of retail space that steadily diluted retailers’ sales per square foot averages, the U.S. remains overstored and oversaturated by retail. The billion square feet of retail space that CoStar Group contends must go is on top of some 5,000 stores that have closed in the past 18 months (about 50 million square feet of space), according to Clarion Partners.
"Simply put, it all comes down to productivity," Suzanne Mulvee, director of U.S. research, retail for CoStar Portfolio Strategy, said in the report. "Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession."
The list of store closings these days is long. Macy’s has begun to correct its own over-expansion and is closing about 100 stores nationwide; some experts believe that’s just the tip of the iceberg for the retailer. Wal-Mart Stores has pulled back on its store expansion plans in favor of dedicating resources to e-commerce. And The Limited, once a ubiquitous mall tenant, shuttered all stores earlier this year in preparation for a bankruptcy filing.
But while the over-expansion of stores and the rise of e-commerce are frequently blamed for creating the predicament that many retailers find themselves in, shopping mall landlords and retailers should be wary of using old methods of calculating productivity in the omnichannel age, according to Hongwei Liu, co-founder and CEO of wayfinding technology firm Mappedin.
“Traffic as we all know is only going in one direction, but revenue is going up,” Liu told Retail Dive, noting the value of traditional store and mall metrics is “breaking down because of accounting, not because of Amazon. When the customer wants red jeans instead of blue, and comes in and tries them on the store and orders the red — you know that your store created that value. That’s where productivity is."
Retailers require a synthesis of data that is ultimately more useful in gauging which stores should close and which stay open, Liu says. But the data is often misconstrued, experts say. Individual customers are important in the old-fashioned sense that a retailer’s job is to “give the customer what she wants,” but retailers also should be taking careful note of customers’ buying habits and desires to discover the keys to optimal supply chain decisions.
“How you get that right is through true omnichannel, and knowing which buyers are buying which things,” Brett Wickard, founder and president of “lean retail” analytics from FieldStack, told Retail Dive last year.