Dept. Stores Must Downsize Faster: Green Street

A Sears in Oxford, AL, one of 10 slated to close in the next few months. (Photo courtesy of Quintard Mall)

NEWPORT BEACH, CA—Last week’s announcement of US store closings from Sears Holdings represents a “marginal” downsizing in the view of Green Street Advisors, with just 10 Sears locations scheduled for closure along with 68 Kmarts. Although Sears and J. C. Penney Co. between them are responsible for “the vast majority of the industry’s ‘sales productivity gap,’” retailers across the department-store spectrum need to pick up the pace on shutting unprofitable locations, according to a report from Newport Beach, CA-based Green Street. “Traditional department store sales have been declining for nearly a decade,” to the tune of nearly 20% on a per-square-foot basis since 2006, according to Green Street’s report. In that time period, market share has gone to a variety of competing formats ranging from e-commerce—including the department stores’ own online selling channels—to apparel brands’ flagship locations. “Department stores appear to be at a competitive disadvantage given the changing consumer shopping behavior,” the report states. “There is no indication that the deterioration of the traditional department store business will reverse going forward.” In aggregate, department stores have “too much space,” says Green Street, while adding that there’s plenty of evidence that a physical presence is important to both brick-and-mortar and Web-based retailers. “However, there are several markets where traditional department stores are likely oversaturated. Sales generated by lower-performing stores in these larger markets would be better served shifting online.” That directive also applies at the mall level, Green Street says. Although mall operators depend on department stores for anchor space demand, “malls no longer need four or five department stores to anchor the property; one to two with other traffic ‘drivers’ filling the void seems appropriate.” The report cites increasing interest from movie theatres, restaurants and traditional power center operators to take over mall department store space.