According to analysis from Green Street Advisors, as reported in The Wall Street Journal, several large retailers need to close hundreds of stores to reach the sales per square foot number from 2006. 24/7 Wall St. has made this case several times, particularly about J.C. Penney Co. Inc. (NYSE: JCP), which we said needed to close 200 locations. The Green Street Advisors number was 320. We also suggested store closings at Sears and Kmart, which are part of Sears Holdings Corp. (NASDAQ: SHLD), as well store closings at Wal-Mart Stores Inc. (NYSE: WMT). 24/7 Wall St. also has made the case that Amazon.com Inc. (NASDAQ: AMZN) is a primary reason the brick-and-mortar retail industry needs to shrink.
Green Street Advisors may have more data and sophisticated ways to analyze which retailers have the deepest problems. Most of the 24/7 Wall St. data are based on revenue in past years compared to current revenue. 24/7 looked at J.C. Penney revenue in fiscal 2010 and 2011, when it was slightly above $17.5 billion. The number fell to $12.6 billion in the most recent fiscal year. As for Sears Holding, revenue in fiscal 2010 and 2011 was about $44.0 billion. That has fallen to $25.1 billion in the most recent fiscal year. The period Green Street Advisors examined was different from the one used by 24/7 Wall St. However, the conclusions were similar.
Sticking to J.C. Penney and Sears, the companies cannot survive with current store counts. Sears is in worse shape than J.C. Penney, as its revenue continues to shrink. Sears Holdings recently announced it will shutter 78 stores. In its most recent earnings statement, annual revenue fell from $31.2 billion in the previous year to $25.1 billion.
Closing stores can be financially complex. Cutting thousands of employees drives high severance costs. Some stores rent the space they use and have leases that could be hard to break.
The bottom line of the 24/7 Wall St. analysis is that all the flailing retailers have unprofitable stores, whether they lose money or are modestly profitable. Not every store is as efficient as the average for these troubled companies. It stands to reason some of them pull down results for the entire companies.
Ultimately, the Green Street Advisors analysis and 24/7 Wall St.’s are the same.