Times are tough for the retail sector. More stores continue to shutter their doors, and many companies now rely heavily on sales and discounts to attract customers. While some blame the weak retail market on a lagging economy, others point to a different issue. They argue that the market has simply become oversaturated.
The U.S. market contains far too much retail space, and many stores struggle to fill it profitably. Richard Hayne, CEO of Urban Outfitters, discussed this issue last week and compared the retail decline to the 2008 housing crash. Retail square footage per capita in the United States exceeds that of Europe or Japan by more than six times. This figure also excludes digital commerce. Hayne explained that the industry added too much retail space during the 1990s and early 2000s. Thousands of new stores opened, and rents soared. As a result, the market created a bubble similar to the housing market. According to Hayne, that retail bubble has now burst. He also warned that conditions may worsen before the market improves.
So, what is the solution? Many experts believe the industry must close more stores. For example, a 2016 report from Green Street Advisors stated that department stores across the U.S. would need to close roughly 800 locations. That total represents about one-fifth of current mall anchor space. The report argued that these closures would help restore productivity levels seen a decade earlier.
The bottom line? The retail market continues to struggle, and the industry must adapt to remain profitable.
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