Retailers closing the most stores

Mark Lieberman and Thomas C. Frohlich March | 24/7 Wall St.

With the growth of e-commerce still outpacing the overall growth of retail sales, retailers are continuing to close brick-and-mortar outlets.

While total U.S. retail sales grew 3.7% in the fourth quarter of 2014 compared to the same quarter in 2013, e-commerce sales jumped 14.6% in the fourth quarter. One year earlier, total sales grew 3.8% year-over-year, while e-commerce sales increased 16.0%.

As e-commerce increasingly grabs a larger share of retail sales, several major retailers are reducing their physical presence, including department stores and specialty retailers such as clothing stores, bookstores and electronics outlets. Some retailers saw sales reduced due to strategic mistakes or consolidation through mergers and still others due to over-expansion. According to Dorothy Lakner, managing director at Topeka Capital Markets, "The new ideal store count for a U.S. national chain [of clothing retailers] is 600 to 700 stores."

The 24/7 Wall St. analysis found three major department stores that announced or continued previously announced decisions to scale back the number of outlets. In at least one instance, the store closures managed to halt the ongoing sales declines. J.C. Penney, for example, the shrinking store count reversed a tailspin that followed a strategic, near-disastrous decision by the retailer to take the middle-market store upscale. That decision confounded customers who eventually began shopping elsewhere, forcing the chain to look for savings.

As part of a bankruptcy filing, RadioShack announced the most recent large scale store closure. Other electronics giants — Circuit City, CompUSA to name two — disappeared in recent years, while others, such as Best Buy, have been struggling. RadioShack is restructuring in bankruptcy and the familiar stores could resurface through a forced marriage with Sprint.

No retailers have perhaps felt more strongly the effect of the e-commerce boom than book stores. The advent of Amazon.com already led to the demise of Waldenbooks, Borders and B. Dalton booksellers and now threatens Barnes & Noble. Barnes & Noble tried to hang on by developing the Nook e-reader to take direct aim at Amazon.com's signature e-reader, Kindle. But in its most recent financial report, Barnes & Noble said revenue for its Nook division fell while earnings for its book division were basically flat. As a result, in the current fiscal year, Barnes & Noble plans to close 13 stores instead of the 20 it earlier forecast.

"Sales trends are turning," Mitchell Klipper, CEO of the Barnes & Noble retail group, who is retiring on May 2 told the Wall Street Journal. "Why close a store that's profitable?"

Barnes & Noble still expects to spin off its college bookstore group this summer.

A large retailer that appears to have benefited from consolidation is Dollar Tree, which acquired Family Dollar Stores. The two similar chains competed on different turfs: Dollar Tree catered largely to suburban customers, while Family Dollar went after urban customers. Like Jack Spratt and Mrs. Spratt, together they could lick the platter clean. As a result of its merger with Family Dollar, Dollar Tree became the No. 1 dollar store chain in North America.

To identify the companies closing the most stores, 24/7 Wall St. reviewed large U.S. retailers that have announced store closings for 2015, or that are in the process of multi-year plans to reduce their physical footprints. Company earnings, store and employee counts, as well as other financial information came from the companies' SEC filings.

These are the retailers closing the most stores.

1. Abercrombie & Fitch (ANF)

Abercrombie & Fitch has taken a nose dive in recent years, a decline punctuated by the ouster of former CEO Mike Jeffries. The former CEO is infamous for wanting to sell only to "cool" people, among other public relations disasters. According to Jeffries, Abercrombie & Fitch clothing embody the "essence of privilege and casual luxury." Yet, with net sales dropping 14% in the fourth quarter, A&F's target audience seems less interested in the clothing than ever. The company plans to open several stores overseas as well as 11 new outlet stores in the United States in fiscal 2015. In addition, however, the company plans to close roughly 60 U.S. stores over the same period. Most of these stores will be closed as their leases expire.

2. Aeropostale (ARO)

Ahead of the 2014 holiday shopping season, traditionally the time of the year retailers make most of their profits, Aeropostale announced plans to close 75 stores in its fiscal fourth quarter — November through January — on top of the 23 it closed in its third quarter. The announcement came as Aeropostale reported its third quarter losses doubled to $52 million from the same quarter one year earlier. The fourth quarter closings brought to 120 the number of stores Aeropostale closed in its 2014 fiscal year, far higher than the company's estimate of 40-50 closings. Aeropostale stated it would close another 126 mall outlets in fiscal 2015. The teen retailer has seen stiff competition from Zara, Forever 21, H&M, and other stores.

3. Barnes & Noble (BKS)

Barnes & Noble has moved its business away from a store-based model to a multi-channel model, which focuses instead on retail stores, Internet, and digital commerce. Like many other retailers, Barnes & Noble leases rather than own many of its stores. One of the reasons Borders went bankrupt several years ago — a similar story of stiff e-commerce competition — was its inability to sell its leased stores. So far, Barnes & Noble has at least managed to close many of its stores upon the termination of the lease period. In doing so, the bookseller has managed to avoid taking major losses from store closures. Still, Barnes & Noble has been closing stores for years. The retailer operated 1,361 brick-and-mortar bookstores in 50 states as of May last year. E-commerce sales as a percent of all retail sales has increased steadily in recent years alongside evolving consumer habits. Barnes & Noble had sales of $6.38 billion in its fiscal 2014, down substantially from the previous year. At the same time, online retailers such as Amazon.com have reported explosive growth.

4. Family Dollar (FDO)

In late July, Dollar Tree announced the acquisition of Family Dollar Stores, which, it said at the time, could result in the closing of as many as 500 Family Dollar outlets. The strategic rationale for the acquisition was to combine "two established and respected brands in the most economically resilient sector of retailing," Dollar Tree CEO Bob Sasser said in an earnings call. According to Sasser, "the Dollar Tree target customer is largely a suburban customer, while the Family Dollar customer is largely urban and rural." Once the transaction closes, Sasser said, Dollar Tree would have more than 13,000 stores with almost $19 billion in sales and more than $2 billion in earnings. Shareholders of both companies approved the transaction in February.

5. JCPenney (JCP)

In January, JCPenney stated it would close roughly 40 stores in 2015, resulting in approximately 2,250 layoffs. The company has floundered in recent years, due in large part to former CEO Ron Johnson's tenure during which JCPenney was dramatically rebranded. The company is still recovering from the disastrous results of the shift. The current store closures can be attributed to other factors as well. While the rise of e-commerce has not had as severe an impact on J.C. Penney as other retailers, Americans' growing preference for making online purchases has cut into mall traffic. According to Fortune Magazine, nearly 700 J.C. Penney stores are located in malls, more than every store except for Sears.

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