The Sky Is Falling And Stores Are Closing!

Implications: As this article implies, due to the sagging economy, 2008 is going to be a record year for store closings which could have profound impact on shopping center REITs. So what is the real story here? In my comment section I will examine some alternative reasons for the closings and some alternative theories of why this increased number of closings will have little real impact on shopping center REITs.

Analysis: First lets examine the numbers. 2008 is estimated to see as many as 5770 store closings. If it is correct it will be the highest since 2004 when 6303 stores closed. 2007 saw only 4603 stores close.  

Did the sky fall in 2004 when 6303 stores closed? Was there dancing in the streets last year when only4603 stores closed?

So what is really going on here and why should we care about the total number of store closings? More importantly, what does the total number tell us about making investment decisions? My view is that the totals tell us nothing and are not the leading indicators of anything important.

The two hardest hit retail sectors are home furnishings and electronics. Neither of these sectors account for very many stores in malls so the mall REITs see this as a nonevent. 

Sharper Image,(SI) who straddled both sectors, will close at least 90 mall stores but this has been anticipated for a long time. The 2008 economy had very little to do with SI's closings. What hurt SI was a lack of  new, fast selling "items" in an "item" business. the fact that they were a poor imitation of Brookstone and the fact that imitators rarely can squeeze out the innovator, was also going against them. Most observers have long felt that there simply was not room for both in the long run.

The apparel sector is also expected to account for a substantial number of store closings. In 2007 they accounted for 543 stores closed. This year they are showing greater sales declines and are expected to increase their total.  The top three chains who have announced closings are Ann Taylor, Charming Shoppes (including 100 Fashion Bug and all their Petite Sophisticate locations) and Wilson's Leather.

All three chains have been struggling under the weight of serious competition and easy money-induced expansion. They could all have closed their stores just as easily in 2007 as in 2008. If they had closed in 2007 as most industry observers had anticipated, Retail Traffic Magazine would have nothing to write about.

The article goes on to mention that home accessories sores, music stores and department stores will also be closing record number of stores. This is even less important because music stores have been closing at a record rate(no pun intended) due to a change in technology not economy and department stores are closing because of the May -Macy merger, not the economy.

So what do we "take away" from this article? My comment is NOTHING! It is basically meaningless because most of these stores could or should have closed in 2006 or 2007. It is just a coincidence that they are likely to close in 2008 when the economy is going further into a decline.