Catherine Rusoff
The retail sector is going through a difficult time as it deals with consumers weary of inflation and a wave of bankruptcies, which has led chains to announce the closure of nearly 3,200 physical stores so far in 2024, according to a new report. analysis.
That represents a 24% increase from the previous year, according to a report from retail data provider CoreSight, which tracks store closings and openings across the U.S. While some retailers are planning to expand this year, major chains announced 4% fewer openings compared with a year earlier, the analysis found.
The blame lies with changing consumer habits, as well as management difficulties and retailer bankruptcies, with the latter impacting companies, including Help ritual and Rua21. The increased number of store closings stems from Dollar Tree’s announcement earlier this year that it plans to close more than 600 Family Dollar stores this year, with the discount store citing the impact of inflation on its customers as well as an increase in shoplifting.
“Many of this year’s closures are related to bankruptcies of chains that have been in trouble for some time, such as Rite Aid and Rue21,” Neil Saunders, managing director at GlobalData, told CBS Moneywatch. “We are also seeing several retailers, like Family Dollar, take steps to eliminate underperforming locations.”
While consumer spending has remained solid this year, there are “pockets of weakness emerging and retailers want to ensure they are in good financial shape to weather any challenges,” Saunders added. “That means optimizing store portfolios.”
Traditional retailers also face difficulties with continued competition from online rivals like Amazon.com.
On the other hand, some companies made strategic mistakes, like Express, which Filed bankruptcy last month and announced plans to close 100 of its 500 locations. The clothing chain, known for its workplace fashion, was unable to connect with consumers after the pandemic ushered in work from home, Saunders said.
This has placed the company “firmly on the wrong side of trends and, in our opinion, the chain has made very little effort to adapt,” it said in a recent research note.
Are consumers cutting back?
Recent data shows that Americans are still opening their wallets. Consumer spending in March rose 0.8% (the most recent data available), which economists say represents solid growth.
But some signs that consumers are starting to fade amid a modest economic slowdown. On Friday, the University of Michigan consumer sentiment index for May knocked down to 67.4, the biggest monthly decline since mid-2021. Confidence is falling due to expectations of higher inflation and weaker growth, Jeffrey Roach, chief economist at LPL Financial, said in an email.
“Uncertainty about the path of inflation could suppress consumer spending in the coming months,” he noted.
Consumers also spent any remaining extra cash they accumulated during the pandemic, when federal stimulus checks and other benefits bolstered their bank accounts, Roach said in a previous report.
“[T]here are the potential risks to consumer spending,” he said. “When households deplete these accumulated savings, it could lead to a decline in discretionary spending.”
Still, some retailers are planning to open hundreds of new stores, CoreSight found. Dollar Tree rival Dollar General said it will add more than 800 stores this year, putting it at the top of the list of retailers opening new stores this year, according to the research firm.
In second place is 7-Eleven, which plans to open more than 270 stores in the U.S. this year, followed by discount retailer Five Below, which plans to open 227 stores, the analysis found.
