Green Street Advisors department stores need to shed 800 locations

Green Street Advisors department stores need to shed 800 locations

Green Street Advisors department stores

Department stores need to close hundreds of locations if they want to regain the productivity they had a decade ago, according to new research from Green Street Advisors.

The real-estate research firm estimates that the closures could include roughly 800 department stores, or about a fifth of all anchor space in U.S. malls.

Sears Holdings Corp. alone would need to close 300, or 43%, of its Sears stores to regain the sales per square foot it had in 2006, adjusted for inflation, according to Green Street.

“Department stores used to be a great catchall for different brands, but today many of the brands have stores of their own, and shoppers can also find them online,” said DJ Busch, a senior Green Street analyst.

Many top retailers have already been closing stores. Macy’s this year shuttered 36 locations out of a fleet of 800, while Sears last week announced another 10 of its department stores would close this summer, bringing its total to fewer than 700 from 900 a decade ago.

Green Street Advisors figures Sears needs to close 300 locations in all, or nearly half its fleet, to get back to 2006 productivity. (Sears Holdings itself has made it clear it wants to become a retailer that is less reliant on big box stores. The company has also sold off many of its best stores and leased space to other chains.)

Back in 2006, there were no clouds on the horizon and department stores expanded like crazy, leading to the U.S. being “overstored.” (They also wanted to contain the then-fast-growing Kohl’s KSS -1.10% .) But then the recession hit, and many shoppers traded down to discount chains and went online. Penney, for one, has closed 100 stores in the last three years, the same amount it had opened between 2006 and 2012.

Sears claims it has been trying to fix its business, but sales keeps plunging, forcing it to sell off many top assets to remain cash positive. Its parent company, which also owns Kmart, has reported 11 straight years of comparable sales declines. As for Macy’s, the company has watched off-price stores like TJX’s TJX -0.04% TJ Maxx eat into its business.

Even a traditionally high performer like Nordstromhasn’t been spared: Sales at its full-service department stores fell over the Christmas quarter. Nordstrom has largely stopped expanding its department stores, save for the notable exception of its upcoming Manhattan megastore, as it focuses on building out its Rack discount chain and its e-commerce, which does rely on physical stores.

In the cases of Penney and Sears, it’s easy to see where they’d likely pare their fleet: Both chains have a large chunk of their stores in so-called C and D malls, which is real estate parlance for weak malls with declining sales per square foot. Macy’s, Dillard’s and certainly Nordstrom, are in better shopping centers.