It is the time of year again, when America’s largest retailers release those critical holiday season figures and disclose their annual sales. A review of these numbers tells us a great deal about how most of the companies will do in the upcoming year. And while successful retailers in 2012 may add stores this year, those that have performed very poorly may have to cut locations during 2013 to improve margins or reverse losses.
For many retailers, the sales situation is so bad that it is not a question of whether they will cut stores, but when and how many. Most recently, Barnes & Noble Inc. (NYSE: BKS) decided it had too many stores to maintain profits. Its CEO recently said he plans to close as many as a third of the company’s locations.
Several of America’s largest retailers have been battered for years. Most have been undermined by a combination of e-commerce competition, often from Amazon.com Inc. (NASDAQ: AMZN) and more successful retailers in the same areas. Borders and Circuit City are two of the best examples of retailers that were destroyed by larger bricks-and-mortar competition and consumers transitioning to online shopping. These large, badly damaged retailers could not possibly keep their stores open.
Currently, the best example of a struggling retailer is J.C. Penney Co. Inc. (NYSE: JCP). The department store chain’s third-quarter revenue dropped more than 26% year-over-year, and its same-store sales fell by about the same. With J.C. Penney’s e-commerce sales slipping by an ever greater amount, it was left with nowhere to go for bottom line improvement other than deep cost cuts.
Store closings can bring a retailer some relief and may not always portend its demise. Gap (NYSE: GPS) announced in 2011 it would shutter 21% of its U.S. store base. It has since transformed itself into a much more successful clothing retailer. As the retailer completes the process of downsizing, its store operations likely will become even more efficient and its margins greater.
Very few retailers get into sudden trouble. Chains like Kmart and RadioShack Corp. (NYSE: RSH) have struggled for years just to stay in place. Their brands have lost much of their luster. Their stores have become old and their locations no longer attractive. The consumer’s perception is that the products they sell can be found elsewhere, usually at a cheaper price, and at retailers with better customers service and wider selections of products.
24/7 Wall St. reviewed the weakest large U.S. retailers and picked those that likely will not be profitable next year if they keep their current location counts. 24/7 analyzed the retailers’ store counts, recent financial data, online presences, prospects against direct competitors and precedents set by other large retailers that have downsized by shuttering locations. We then forecast how many stores each retailer will have to close this year to sharply increase its prospects financially, even if some of those location closings do not occur for several years. These forecasts were based on drops in same-store sales, drops in revenue, a review of direct competitors, Internet sales and the size of cuts at retailers in the same sector, if those were available.
These are the eight retailers that will close the most stores in 2013.