In this episode of Retaili$tic, John Mercer, Head of Global Research at Coresight Research, discusses the significant retail trends and economic factors that drove store openings and closures in 2024. He also outlines Coresight Research's predictions for store changes in 2025, offering insights into the challenges that various sectors are facing, the impacts of inflation and the evolving consumer behavior that is reshaping the retail landscape in both the US and UK markets.
Takeaways
Chapters
00:00 This Week in Research: New Reports and Data
02:52 Store Openings and Closures in 2024
07:19 Sector-Specific Challenges and Trends
10:23 Square Footage and Retail Space Dynamics
12:48 Predictions for 2025: Store Closures and Market Outlook
17:50 Comparative Analysis: US vs. UK Retail Markets
Dive into the full details of store closures and openings in the US and the UK with our comprehensive reports:
Welcome to Retaili$tic, the official podcast of CoreSight Research for February 4th, 2025. This week, we have a fascinating interview with John Mercer, Head of Global Research, on store closures and openings last year and predictions for 2025. John has great insights on the economic forces driving store closures in both the United States and the United Kingdom.
But before we talk to John, let's hear from Georgina Smith, Head of Editorial, about the exciting research publishing this week.
This week, dive into the fascinating and evolving world of retail tech with our new deep dive on the emerging technologies that are shaping physical retail and e-commerce in the US this year. Examine the strategic shifts made by major retail players in response to tech trends and uncover how these trends are impacting modern shoppers by exploring our new US Consumer Survey findings.
We identify opportunities for brands and retailers to leverage tech across three critical areas, the supply chain, operations and customer facing practices. From AI to Web3, robotics and associate enablement, discover the tools you need to source more efficiently, improve productivity, drive sales and yield other benefits to gain a competitive advantage.
Sticking with the US, we present our macro consumer and retail outlook for 2025, covering inflation, interest rates and the housing market. And with tariffs remaining a key area of discussion for retail, we have also published new survey analysis on US consumers' perceptions of and concerns around tariffs, covering the potential impacts on the economy and their own shopping habits.
New survey data from Coresight Research also reveal consumer expectations for key shopping holidays and events in the first quarter this year, namely Valentine's Day and President's Day, as well as taking a very early look at expectations for the end-of-year holiday season.
Elsewhere in research, our Earnings Insights reports feature recent management commentary from major US retailers on their performance. This week, we begin our coverage of fourth quarter 2024 earnings and holiday updates providing you a convenient source of comprehensive earnings information in one place.
Finally, I just want to direct listeners to our video content on Coresight.com, which offers insights directly from our team of global analysts, complimenting our detailed research reports and giving you a new channel to keep up with retail developments. We have recently added new videos presenting highlights from our Retail 2025 series of sector outlooks, so be sure to check those out.
Thanks Georgina. Now let's head over to the London office for our chat with John. How are you this fine day?
Hi Philip, and well thanks, how are you?
I'm doing great. How's the weather in London today?
Cold and dry.
Awesome. So today we were going to talk about the latest store opening and closing research that Coresight is publishing. So to dive in, how did the store openings and closings look last year in 2024?
Yeah, so this is off the back of our big annual analysis of our store openings and closures data. We publish a pretty long report every January. We've just published one for the US, one for the UK. In the US, the kind of headline figure was that we tracked about 7,400 closures. And that's a lot. That's the biggest number we've tracked since the pandemic impacted year of 2020. So it was a big uptick in closures, offsetting a large chunk that we tracked about 6,000 openings in the US. So it wasn't purely negative, but it was a high number of closures.
And we saw those closures fitting into kind of three areas, three different types of closure programs. So firstly, you've got liquidations where a retailer is closing all of its stores. For instance, in 2024, we saw liquidation by American Freight.
The second one is we see distressed retailers closing large swathes of stores. And often that will be under Chapter 11 bankruptcy and other restructurings. For instance, in 2024, we saw LL flooring do that.
And then the third one, which maybe goes slightly under the radar relative to the first two, is where legacy retailers are reshaping their store footprints. We know consumers are shopping differently, they're switching channels, they're switching types of retailers, and sectors like drugstores, department stores are finding they have to reshape their estates for how consumers are shopping now. And pretty much all three of those saw substantial store closures last year. So it was a big uptick.
And then in terms of context for that, why we saw that, I mean, we point to a number of factors. So you've got the after effects of high inflation. Inflation has moderated a lot, but consumers, particularly more price conscious consumers living on lower incomes, are still feeling the effects of that inflation and still spending cautiously in some places.
And then big ticket categories were relatively weak on the back of a very soft housing market. So existing house transactions were down again last year, very low rate of housing purchases, important for big ticket because when people move, they spend on furnishing, equipping, improving their homes. So we saw dented demand for those kind of home improvement, home and electronics categories.
And then, you know, we had other pressures, interest rates still high, not cut as much as people expected in 2024. So yeah, you have this kind of confluence of factors that compounded and compressed on retail and consumers. And it led to a kind of negative year for store closures.
We've seen, we've reported in other places on things like Temu and Shein and obviously Amazon continues to grow and then also home delivery. So I would imagine those two factors, the growth of being able to buy online, get stuff delivered to your house precludes the necessity of visiting a brick and mortar location.
So to some extent on that second point, yes, for a long time, we and others have been pointing toward omni-channel as a way forward, at least for legacy retailers. Consumers do want to shop across both channels. And of course, purchasing online in general for delivery is a multi-year trend. It's not something I've seen new for, say, 2024. The first point of your comment is really interesting because we do think Shein and Temu are becoming quite significant pressures for some retailers worldwide, so not just in the US, globally.
Shein and Temu turned over about $100 billion of sales in 2024, of which we estimate a minority share came from the US. But even a minority share of $100 billion is sizable. And the point is these are sizable and growing really quite quickly. And the large bulk of those expanded sales for Shein and Temu will be pulled away from legacy retailers. So we think there's kind of a hidden story in terms of pressures on the top line of legacy retailers, particularly in categories such as general merchandise, products bought on specification that suit this kind of online purchase, cross-border purchase, and where consumers are seeking really low prices above all else.
So when some retailers are saying, you know, we're seeing soft consumer demand, volatile consumer demand, we think in some cases an unacknowledged pressure as part of that could be players such as Shein and Temu and others such as sales on TikTok shop, for instance, that's also piling in there, compounding the pressure. And there are other cross-border players like AliExpress. We think those are bit of an under-recognized pressure for some retailers. And that's kind of compounding the problems and contributing, we think, to store closures.
So let's talk about those specific sectors in a little more detail. You did mention general merchandise. I would imagine apparel. But what are some of the, when you look at the store openings and closing data, and you're talking about the net, obviously, what specific sectors can you call out as more or less challenged?
So last year, there's really two sectors to call out that were very prominent. The first those is the broader home sector. In the context of that weak housing market, pressures on consumers, pressures on big ticket, we saw a number of home goods retail bankruptcies in 2024. American Freight, Cons, Dormify, L.O. Flooring, the Container Store, Metro Mattress, and we also saw one or two other, well, a number of others actually, including a Bode Concept franchisee.
So we really saw the pressures and the weaker housing market pressure some of those retailers in the big ticket sector, the home sector. So that's one thing to call out. And then the other one was that unusually, discount stores were the sector that closed the most stores last year.
Now that is unusual. Most years, the discount sector opens the most stores and in gross terms, it did last year, but in gross terms, also closed the most stores last year. And that was really driven by 99 cents only liquidating, Big Lots closing hundreds of stores and Family Dollar closing a tranche of stores too. And Big Lots was challenged really on two fronts. Firstly, it was exposed to that weak big ticket furniture category. And secondly, it was exposed to lower income consumers and both of those kind of coincided in 2024. It had already been loss making for a couple of years. It had been seeing sales fall and we think those really compounded pressures for Big Lots last year.
And then other sectors to call out, apparel was the sector that closed the second highest number of stores. That's not really unusual. We tend to see apparel over multiple years closing quite a few stores as the sector gets reshaped and slims down. that wasn't so unusual, but discount and home were really prominent closures last year.
It's probably from 2023 rather than 2024, but I'm curious how the retail pharmacy sector, you know Walgreens, there was a lot of headlines about their challenges last year. Do you see anything interesting in the data for that type of store, the retail drug store?
Well, yeah, the retail drugstore kind of fall into this third bucket that I mentioned earlier, which is legacy retailers with very substantial store estates effectively needing to reshape those store estates for how consumers shop now. And we are seeing most years the two major drugstores close in the hundreds of stores. Walgreens and CVS closed hundreds of stores last year.
We would expect to see similar patterns this year. And it is really reshaping those store estates that are really very, very extensive, thousands of stores, and kind of pulling back some of those store estates. We did see sizable drugstore closures last year, but it is kind of reshaping those longstanding store estates really.
What other kind of interesting data is in the report in terms not necessarily of rooftops? What about square footage?
Yes, so we go beyond tracking just store numbers. We do track square footage. We track the type of location that stores are in, whether that's in a mall, off mall, or mixed. We also track for subscribers closures as a percentage, as a share of retailers store base.
So calling out a couple of features in that. In terms of square footage last year, we estimate that 190 million square footage of retail space closed, partially offset by 96.5 million square foot of retail space being opened. So like store numbers, we saw net closures in terms of square footage last year.
And in terms of where those closures and openings happen, what's quite interesting, people talk about the decline of the mall, the death of the mall. But when we look at the balance of retailers, whether they're mall-based retailers or off-mall retailers. Actually, mall-based retailers accounted for a minority share of closures last year. About 15%, 1.5% of the closures we tracked were by predominantly mall-based retailers. Now, we also saw that in openings. About 11% of the openings we tracked last year were by mall-based retailers. But it shows that it's about much more than the decline of the mall and store closures pulling malls down. The large share of these store closures really are happening off mall.
Very interesting. I mean, given there's a lot of news about internal migration within the United States, people moving around a lot, it would be interesting if you think about if, for instance, a lot of folks were moving from cooler climates to warmer climates that would make for a greater opportunity for open air malls versus enclosed malls. If it's a nice sunny atmosphere, you don't have to spend all that money to build a roof on your mall.
But that's really interesting. I'll look forward to diving into that and seeing if there's any weather related issues in terms of where the stores are opening and closing would be interesting. So what does 2025 look like? I know 2024, we have all that data in and have started the analysis on that, but what about next year? What are you seeing in 25?
So we're expecting a further increase in store closures for 2025. 2024 was strong for store closures. We expect that to increase further. Closures got off to a strong start early this year. As of week five, our closure count stands at about 2,100. And that's about fourfold what we tallied for closures at the same time one year earlier. It was only about 500 then. So we're already at four times the closures last year.
We think that that is likely to be an omen for a year of high closures. And we see a few factors in that. We see some effects spilling over from 2024. For instance, specifically, we're seeing a lot of the Big Lots closures that began in 2024 rolling over into 2025. Likewise, a lot of the Party City's, well, actually all of the Party City closures, 700 plus, will fall into 2025.
There's a risk that Joanne could liquidate, which would take another 800 stores, 800 plus stores out of the retail space. We've seen announcements from Macy's and Kohl's, which total about 100, which isn't a huge numerical contribution, but obviously these are big store players, anchor tenants, and they have an outsized impact. So we think the indicators are that we're off to a year of strong closures. We expect a lot of the disruption that we mentioned in 2024 to continue. You know, the competitive challenges.
Temu and Shein are likely to get bigger. There is a question mark over TikTok and so TikTok Shop, but we expect if TikTok Shop did see forced closing in the US, that would likely flow and benefit other emerging channels, possibly including places like Temu.
And then we've got the policy disruption. You know, tariffs are a bit of an unknown still in terms of what will get implemented and then in turn how that will impact retailers and consumers. One risk with tariffs is that if they do get implemented at the high levels that have been noted, it creates a renewed inflationary cycle. Consumers respond badly, prove more cautious in terms of spending, and then that pressures the top line of retailers at the same time that their costs are likely to be rising. So we end up with a new squeeze on retailers. So that is an unknown, but we think that kind of volatile, uncertain context is the backdrop for elevated closures this year.
Yeah, and even if they don't increase tariffs, if they eliminate the $800 exclusion and start enforcing that, all of those small TEMU packages are going to start facing the existing tariffs that they're now excluded from. So that could be an interesting impact as well. So keep our eyes and ears open for what the whole international trade regime looks like under the new administration.
So we talked a lot about the US. What about in the UK and your neck of the woods?
So in 2024, we saw a reduction in closures in the UK. That was despite it being quite a difficult year for UK retailing. We do expect closures to increase quite significantly in 2025. So to pin some numbers on that, we tracked about 1,200 closures in the UK in 2024. We're expecting that total to jump to about 2,000 closures this year.
And we think the backdrop is pretty pessimistic for retail in the UK. There are cost pressures from taxes, such as on employment and on business properties, so retail stores. There are pressures in terms of increases in the minimum wage. And lot of this is off the back of a government budget in later 2024, which piled a lot of these pressures on retail.
And at the same time, we expect demand to be relatively soft. There's little sign of the UK consumer being willing to spend substantially or to increase their spending substantially. Consumer confidence is low. Economic growth looks set to be low-ish. There are still cost of living pressures and some cost of living pressures are still going up. So we think the consumer is pretty constrained, very pessimistic.
Businesses have a lot of cost pressures and we think if both of those coincide, what we could see is a deleveraging of the fixed costs that come with physical stores. So as sales fall, stores can pretty quickly slip from profitability to loss making and it obviously makes stores more likely to be unviable. And we think that in turn could drive a big chunk of these store closures in 2025. So we're not very optimistic on the retail and particularly the physical retail outlook for the UK in 2025.
I guess it's an important year for retail decision makers to make extremely smart decisions, "forged in fire," as they say.
Yeah, absolutely. But also it's a story of two consumer economies at the demand level heading in quite different directions. You know, we've talked about challenges in the US market for retailers. A lot of that is competitive challenges. The demand side for US retail is really quite resilient. We saw a strong holiday season. We've got a strong labour market for the US. Consumers appear willing to spend. Consumer sentiment, as tracked by Coresight's weekly surveys, has risen considerably and is net positive. And we're projecting quite solid retail growth for the US market in 2025. I think the question is really where that is directed as much as the shape of that growth.
The UK, think, a different or is heading in a different direction. It's heading on a weaker trajectory. So I think that kind of two consumer economies heading in different directions.
Well, that certainly gives us a lot to think about. Perhaps next week we could have you back to talk about tariffs and how they impact both economies.
All right, talk to you then.
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