Mobile shopping and shrinking middle class spur store closings early in year

This Thursday, Jan. 8, 2015 photo shows the exterior of J.C. Penney at the Cumberland Mall in Vineland, N.J. J.C. Penney Co. announced Thursday, it will close about 40 stores this year, including this one, and cut approximately 2,250 jobs, as it tries to recover from a disastrous attempt to reshape its brand. (AP Photo/The Press of Atlantic City, Michael Ein) MANDATORY CREDIT ORG XMIT: NJATL101
This Thursday, Jan. 8, 2015 photo shows the exterior of J.C. Penney at the Cumberland Mall in Vineland, N.J. J.C. Penney Co. announced Thursday, it will close about 40 stores this year, including this one, and cut approximately 2,250 jobs, as it tries to recover from a disastrous attempt to reshape its brand. (AP Photo/The Press of Atlantic City, Michael Ein) MANDATORY CREDIT ORG XMIT: NJATL101 (Michael Ein / Associated Press)

With the holiday shopping season over, store closing season has arrived, driven this year by a shift in how and where consumers make purchases and the continued decline of a once-dependable middle-class customer base.

Less than two weeks into 2015, Macy's, JCPenney, Wet Seal and Deb Shops have announced store closings and layoffs, and more are likely on the horizon.


Wet Seal, a mall fashion retailer targeting teenage girls, closed six of seven Maryland stores Tuesday. Deb Shops, a Philadelphia-based seller of young women's apparel, is going out of business and closing nearly 300 stores, including one in Westminster. The two department stores, which have a strong Baltimore-area presence, plan no store closings in the state, though JCPenney is closing a store in York, Pa.

To some extent, trimming store counts at year's end is as much a part of the retail cycle as Black Friday doorbusters, as retailers take stock of the past year's performance and assess holiday results. But this year, despite better-than-expected holiday sales for several discounters and specialty stores, it's unfolding amid some seismic shifts in the industry, experts say.


"Tremendous changes are taking place out there," said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a New York-based retail consulting and investment banking firm. "Stores are trying to respond."

Wet Seal Inc.'s decision to abruptly close about two-thirds of its stores, including shops at the Gallery at Harborplace and Westfield Annapolis mall, stunned employees. Only one Maryland location remains open, at Arundel Mills mall.

After closing 338 of its mall-based shops and laying off nearly 3,700 full- and part-time workers, about 173 stores will remain in the California-based chain, which said it made its decision after assessing its financial condition and failing to negotiate "meaningful concessions" from landlords.

"This was a very difficult decision to make, but after reviewing many other options since I returned to the company in September, our financial condition leaves us no other alternative," Wet Seal CEO Ed Thomas said in the announcement.

Some employees said they were misled about the chain's future before being let go with no severance pay.

"It was heartbreaking, right after the holidays when we've spent money on gifts," said Marnice Cromartie, a Catonsville resident who was manager of the Bowie Town Center store. Before being notified of the closings, she said, "they led us to believe they were going through a transition."

Cromartie, 30, who had been a Wet Seal customer since sixth grade, said she found the job one of the most enjoyable in her 10-year retail career. Now she is worried about paying her rent and finding a new job.

Wet Seal and Deb Shops are far from the only victims of troubled times for the hard-hit junior apparel category. Other retailers that have closed stores or plan to include Dots, Juicy Couture, Guess, Coldwater Creek, Delia's, Aeropostale and Abercrombie & Fitch.

"That sector is hit the worst," Davidowitz said. "If you're a youngster, a teen, your most important possessions are iPhones and iPads and sneakers, as opposed to a sweater or a pair of jeans. You have new priorities in your life."

Department stores, especially those that long have catered to middle-class customers, are feeling the pinch from online and discount sellers and are paring down stores, too. For example, Sears said late last year that it was closing about 235 underperforming stores, the majority of which are Kmarts.

On Thursday, Macy's said it will close 14 department stores in nine states by early spring, compared to two closures last year. The company hopes to salvage some of the $120 million in annual sales generated by those stores through sales at nearby stores and through online and mobile sales.

"Our business is rapidly evolving in response to changes in the way customers are shopping across stores, desktops, tablets and smartphones," said Terry J. Lundgren, Macy's chairman and CEO, in the announcement from the Cincinnati-based retailer, which also owns Bloomingdale's.


Besides adding new stores more selectively, he said, Macy's will be "trimming those that no longer meet our performance requirements, where the real estate can be redeployed to more productive uses, or where our leases were not renewed."

Lundgren said stores are also taking on new roles, often fulfilling online orders that are shipped directly to customers. About $1 billion of Macy's and Bloomingdale's direct-to-customer shipments last year originated from stores.

J. C. Penney Co. Inc., too, announced closing plans last week. About 40 stores, with sales as much as 20 percent below the chain's average, will close by April, including the one at York Galleria. More than 2,200 workers stand to lose their jobs.

"We continually evaluate our store portfolio to determine whether there's a need to close or relocate underperforming stores," said Joey Thomas, a JCPenney spokesman. "While it's never an easy decision to close stores, especially due to the impact on our valued associates and customers, we feel this is a necessary business decision."

JCPenney has accelerated closures in each of the past two years, closing 100 stores since 2011, said Michael Binetti, executive director of UBS Investment Bank, in a research report. That trend likely will continue, he said, not only as a way to shed weaker stores but because nearly half of its stores are considered to be in less desirable locations.

For JCPenney, Binetti said, "we believe brick-and-mortar closures will be ongoing practice for several yeas."

Consumers still are buying, but "the whole market is changing," said Mousumi Bose Godbole, an associate professor of marketing at Fairfield University in Connecticut who tracks consumer behavior. "The virtual world is becoming stronger," she said, even though it still accounts for less than 10 percent of total retail sales.

That has prompted traditional retailers to invest more and more in e-commerce, and "that's primarily in response to retailers like Amazon and the likes of Amazon," Godbole said. "The trend is working toward the mobile way of doing business. I can find exactly what I want to buy, compare products, compare prices, and make a decision and buy."

But that's not to say the amount of shopping center space will decline, one industry group argued.

Retail space is growing, albeit slowly, said Jesse Tron, a spokesman for the International Council of Shopping Centers. The United States has 7.5 billion square feet of leasable retail space, up just slightly from 7.1 billion in 2001, according to CoStar Group Inc., a real estate information firm.

Adding less space has been good for the industry, Tron said, helping to push occupancy rates at shopping centers to prerecession levels — currently at 92 percent — and improve sales per square foot.

The ICSC is not expecting a big uptick in closings this year, though "so many get announced so quickly, it lends itself to the perception that it's more," Tron said.


"This is kind of par for the course in terms of the retail industry," he said of this year's closing announcements. "This is when chains generally shut stores. They look at their performance and where some are underperforming, or you see some bankruptcies, particularly so in this quarter."

About 45 percent of all store closures occur in the first three months of every year, according to the council.

Since the recession, however, a few things have changed.

"You may see retailers reconfiguring the size of their space," Tron said. "You won't see too many people looking for massive footprints the way they did 15 or 20 years ago."

And today's retailers also are more likely to close underperforming stores than in the past, when they might have kept a store open for brand visibility.

"Post-recession you're not seeing that," Tron said. "It really is about maximizing profitability."

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