He doesn't say whether or not he had a premonition of Sears also shuttering some of its outlets. But indeed, as GlobeSt.com reported on Friday, the retailer is closing 87 stores throughout the country, a move that comes almost immediately on the heels of Montgomery Ward filing for bankruptcy protection.
Mendelson, who adds that the Office Depot move will include five New York stores, says that this is only the beginning in a market where competitors are offering little differentiation. "Here's the problem," he tells GlobeSt.com. "There are so many retailers today who are doing the same thing. You have Office Depot, Office Max and Staples. And then there are the crossovers like Kinkos. Those retailers that offer a business not replicated 50 times over will survive." (Insignia/ESG does not represent Office Depot.)
Faith Hope Consolo, vice chairman of Garrick-Aug, agrees. "There's nothing special about what they do," she says. "And it's not tied into a slow holiday season. These retailers expanded in good times with the thinking that every neighborhood needed their product. It wasn't true. They haven't sharpened their pencils in years." Nevertheless, most retailers are bemoaning lower-than-anticipated holiday results, with reported growth for December at a meager 0.5%.
For Insignia's Mendelson, the question is not so much why they closed, but who's going to fill the void. For the five Office Depot stores, he says, "these are fairly new leases taken at the height of the market. What will happen if they can't be replaced at the rents they're paying? The retailers will have to take the hit, and if the numbers aren't strong enough to take that hit, they'll go into Chapter 11."
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