Across the U.S., shopping center and mall owners are anticipating a wave of store closures, following a rough year. The tumultuous year included different store chains such as Sears and Bon-Ton going bankrupt. Walmart also closed a lot of its club stores, and Toys R Us is liquidating.
Specialty retailers like L Brands as well as Gap are currently taking downsizing seriously. This situation can leave more vacant storefronts in malls until such time that landlords replace tenants.
When retailers are not closing their stores, they focus on discussing with their landlords how they can cut rent and other related expenses. According to real estate analysts, retailers still have the upper hand, not the shopping center and mall owners, in most negotiations these days.
Haendel St. Juste, a Mizuho analyst, expressed that their early read for 2019 is quite the same. They are predicting that both shopping centers and malls face another year of moderate earning growth and should continue to expect store closures.
From The CEOs’ Standpoint
Analysts spoke with Express CEO, David Kornberg, Thursday morning. He said that the company benefits from the reduced occupancy costs, which they expect to continue given the recent negotiations about the lease.
60% of Express’ leases are up for renewal in the next three years, which will place them in the position to argue for lowered rents, according to Kornberg. As of this time, Express has more than 600 stores, outlets included, across Puerto Rico and the U.S.
Such comments come after Gap warned earlier this month that it is considering shutting down hundreds of namesake stores at shopping malls given the Gap brand’s sales continuing to slide.
On Tuesday evening, the retailer said that it currently has 775 Gap-branded stores worldwide, aside from those under the Banana Republic, Athleta, and the Old Navy banners. Gap has more than 3,000 stores globally.
However, the namesake brand has been the company’s weakest unit as of late. During the fiscal third quarter, sales at Gap stores operational for at least 12 months fell 7%, while those at Banana Republic and Old Navy remained positive.
During a call with analysts on Tuesday evening, CEO Art Peck mentioned that there are a lot of stores which likely don’t fit with their vision for the future of Gap brand specialty store in terms of customer experience, profitability, as well as traffic trends.
Peck also stated that the company needs to look after its fleet of Gap stores who are currently at the bottom half, as it can contribute about $100 million to its earnings. The CEO added that the company is looking to make decisions regarding store closures with urgency, which include the possibility of shutting down some of the brand’s “amazing flagships.”
He further explained that there would most likely be a cash cost when the company exits most of the stores, which they will try to minimize. He plans to cut stores which don’t fit the future vision. The CEO says that he’s going to move considerately but aggressively.
Gap’s shares were up at approximately 4.6% by Wednesday midday. But the stock has slipped more than 24% within the year.
Some analysts remain hopeful that Peck and his team are moving towards the right direction to bring the Gap brand back on its feet, without dragging down the other labels of the parent company.
The company hasn’t provided specific locations which will close, but further details will be available as soon as it releases forecast for the succeeding fiscal year.