Why are so many big retail stores closing? Experts weigh in

Home decor chain Pier 1 is just the latest retailer joining a growing list of businesses closing their shops in Canada.

Other big retailers that are either shuttering stores or going bankrupt include Carlton Cards, Bench and Forever 21. Doug Stephens, founder of consulting agency Retail Prophet, and other analysts say the closures were hardly a surprise.

The “wholesale collapse of the mid-tier of retail” has been happening for the better part of a decade but in recent years there have been up to 20,000 store closures across North America, he said.

The general reason for those closures in Canada is the retailers’ lack of understanding of their customers’ new habits. They also didn’t appreciate the meteoric rise of online shopping, Stephens and other analysts said.

LOSING CONNECTION WITH CONSUMERS

Sally Seston, founder of boutique firm Retail Category Consultants, told CTVNews.ca in phone interview, for many of these brands “they’ve lost touch” with their shoppers.

“They don’t understand them anymore. They have no community with them. They’re not meeting their needs,” she said, adding that in many cases, these companies had been struggling for some time, with online shopping “kicking them in the teeth.”

By the time these companies attempt restructuring, their last-ditch efforts are too late, she said.

Stephens agreed and said all businesses today have to provide an experience for consumers, promising them “time well-saved or time well-spent.”

He cites the online shopping platform Amazon as an example of saving people time, and clothing giant Nordstrom as an experience of luxurious shopping. Stores that are closing are offering neither of those things, he said.

“Often times what we find is that these are not brands that have necessarily carved a distinct … piece of the market,” Stephens said. “They’ve been sort of left to languish in the middle of the market.”

ONLINE SHOPPING

All of the analysts noted the influence online shopping has had on all companies, particularly bricks-and-mortar stores, as well as consumers’ desires for the convenience of shopping from home.

“A lot of these stores really haven’t changed in the last 10 to 20 years but the consumer definitely has,” Craig Patterson, founder of online publication Retail Insider, told CTVNews.ca.

“We’ve come to have these expectations that we can get things new (and) quickly now, how we want them, how we want them,” he noted, saying that the best retailers make the shopping experience seamless.

But Seston points out that digital-native businesses also realize the power of having a physical location.

“What they’re bringing is a great understanding of their shopper and they’re not afraid to experiment in their retail location,” she said, citing pop-up shops or temporary outdoor malls.

She mentioned that some brands are also using temporary leases in popular neighbourhoods as a way to test new products.

DECLARING BANKRUPTCY

For struggling companies, filing for bankruptcy can provide some breathing room.

Seston and others pointed out that some of these large companies end up choosing to file because it’s a means to shut down stores to make the company more nimble.

A bankruptcy filing can give them a “chance to hopefully limp along in the future on a smaller format basis and try and rebuild the brand again,” she said.

She added that bankruptcy allows companies to renegotiate with their creditors and, in some cases, the firms or malls who own their lease.

Seston said when a company declares bankruptcy, it forces lease owners to pay attention and be more willing to renegotiate rent rates because they “don’t want a hundred empty stores.”

If mid-tier stores can’t afford the rent, the mall or shopping plaza will look undesirable for customers, she noted.

COMPETITION FROM NEW, MORE SAVVY COMPANIES

Maureen Atkinson, a senior adviser of research insights at J.C. Williams Group, suggested that the worst wave of store closures occurred two years ago and that the number of closures is “actually decreasing.”

Competition from similar or more consumer-savvy stores is another big factor in retail failures.

Last year, more than 9,300 retail stores closed in the United States, according to Coresight Research. And according to Retail Insider, more than 100 foreign retailers have entered the Canadian market in the last three years alone, adding to the competitive pressure.

But Patterson also points out that bigger brands such as Nike and Canada Goose are shifting focus to sell their products in their owns stores and away from multi-brand retailers or department stores. This move can be devastating to retailers who host multiple brands, analysts said.

With a file from CTVNews.ca writer Graham Slaughter