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More than 4,300 department stores are set to close this year.
More than 4,300 department stores are set to close this year.

The retail apocalypse will claim 4,300 stores this year - Here's why mall giants aren't freaking out

INTERNATIONAL NEWS

By Ethel Jiang - Mar 5th, 14:19

More than 4,300 department stores are set to close this year as the retail apocalypse rips through Payless ShoeSource, Gymboree, JCPenney, Gap, Victoria's Secret, and Sears. But one Wall Street analyst says mall giants should easily weather these closures.  

Gap said that it would close 230 namesake stores over the next two years as it reported that same-store sales fell 7% during the holiday quarter. The company also said it would spin off its Old Navy brand.

On the same day, JCPenney said it would close 27 stores in 2019 as its same-store sales fell 4% during the fourth quarter. Additionally, Victoria's Secret's announced it was shuttering 53 locations this year, citing a "decline in performance."

These store closures will only have "a small impact" on major mall owners such as Simon Property Group and Macerich, Kevin Brown, an analyst at Morningstar told Business Insider.

Brown says department-store closures usually happen at low-quality properties that drive low foot. However, major mall operators such as Simon Property Group and Macerich derive more than 80% of their net operating income from high-quality properties located in areas with high foot traffic and higher-income shoppers.

"Stores in these locations tend to be very healthy and profitable," he said, adding that retailers struggling in these locations may accept a profit loss from such stores because they can act as a showroom to feed online sales.

Even if the situation is bad enough for the retailer to close a store in a higher-end location, mall operators will still have some time to absorb the effects.

"The mall receives a lease termination fee, covering the expense of having to turn the store over," Brown said. "Many top malls have a list of tenants looking to expand, including many previously e-commerce exclusive retailers that are looking to place select stores in only the best locations, so the drop in occupancy shouldn’t last for more than a few quarters."
 

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