The crisis has returned.
U.S. retail closures have reached their highest level since the COVID-19 pandemic, with recent data showing a sharp rise in store shutdowns. As of November 8, 2023, retailers have announced 6,481 closures, including 336 closures in just the past week, according to Coresight Research. A significant portion of these closures is attributed to American Freight, which is closing all 329 of its locations due to its parent company’s bankruptcy.
In contrast, there have been 5,363 store openings this year, with 30 of them occurring in the past week. However, closures are still outpacing openings, reversing a trend from the previous two years. In 2021, the gap between closures and openings was relatively small, with closures exceeding openings by just 180 stores. In 2020, the difference was much larger, with closures outpacing openings by nearly 6,000 stores. Coresight also tracked 43 retail bankruptcies in 2023, a significant increase compared to the 25 bankruptcies recorded the previous year.
Several macroeconomic factors have contributed to the challenges retailers are facing. Despite a decrease in inflation, many consumers are still cautious about their spending due to high prices. Additionally, higher interest rates have added pressure, particularly for retailers carrying debt, as the cost of that debt has increased significantly compared to previous years. Labor costs have also risen, further impacting retailers’ profitability.
The housing market’s ongoing weakness has created additional challenges, particularly for retailers of high-ticket items like furniture, home appliances, and electronics. Fewer people are moving, which reduces demand for these products. These macroeconomic pressures have had a disproportionate impact on lower-income consumers, as evidenced by companies like American Freight and Big Lots, which are heavily exposed to this demographic. Big Lots filed for Chapter 11 bankruptcy protection in September and announced plans to close several stores as part of its restructuring.
Some retail closures, however, may not be the result of distress but a necessary adjustment. Drugstore closures, for example, may reflect efforts by companies to rightsize their operations rather than financial struggles.
