You read the headline right, there are more retail stores opening this year than there are stores closing. You may say, but when I walk down almost any shopping street, I see so many vacancies where there were previously tenants, so... how can there be more openings than closings?
A new report out by IHL Group answers the question. The kind of store that's opening now is different. If you look at the chart below, you'll see that the most significant closings are due primarily to the Radio Shack bankruptcy and the closure of a lot of fashion stores. The fashion-related vacancies you're seeing are dominating the list of store closures. You could blame technology for that, but that wouldn't be entirely fair. It's more fair to say that technology accelerated the decline of retailers who have not been in touch with what their consumers wanted as much as their competitors. Technology helps consumers see more of what's available and that makes the comparison between brands so much more stark and apparent.
What's Opening Now
One of the things you'll see on the chart above is that the list of stores opening this year is dominated by discount and convenience stores. (You might not recognize some of the names. Couche-Tard is the corporate owner of Circle K stores, and Aldi and Lidl are large European grocery chains that are expanding in the US.)
The data highlight changing lifestyles and tastes. Fashion is less important in physical retail stores. It's being shopped for more and more online and it's becoming less of a focus for younger consumers who are more willing to spend money on experiences than on fashion products.
What's the net difference in stores in total? The chart below tells the story (they are calling mass merchants what I call discounters like Dollar General and Dollar Tree). The discounters and convenience store openings are opening in a big way and the fashion retailers are closing almost as fast.
The reason why you see so many vacancies even though more stores are opening than closing is that the footprint and locations of the stores being closed aren't suitable for the stores being opened. The old stores' formats can't be transformed and their locations don't work for the new stores that are opening. Hence, more vacancies for you to see on major shopping streets. (Here's an article I previously wrote about what will happen to the retail spaces that are vacant now.)
Of all the experiences that consumers are starting to prefer over purchases of things, food is always at the top of list. It's one of the few things that applies to everyone so the market for restaurants is enormous. Ergo, any look at retail locations opening and closing should also be looking at what restaurant doors are opening and closing too. Here are the restaurant brands with the most store openings:
Source: IHL Group, Company Reports
Largest number of restaurant openings
These are the restaurant brands that are having the most store closings:
Source: IHL Group, Company Reports
Largest number of restaurant closings
At first glance, it's hard to see trends in these store opening and closing numbers. For example, why is Starbucks closing stores and Dunkin Donuts is opening? Why is Pizza Hut closing stores and Noble Romans (also pizza) opening more stores than anyone else?
I had a conversation with my trend-seeing friend Irma Zandl about it. Zandl says "Dunkin Donuts , which is rebranding to just 'Dunkin,' has impressed me since Nigel Travis got on board as CEO in 2009. He really gets consumers. Their impending rebrand that drops the 'Donuts' name, suggests they realize how trendy donuts have become and they don't want to be caught up in the donut backlash." About Starbucks, Zandl says they are "at a tipping point. There are so many other, better, coffee places...hundreds of local places..." She adds, "as an aside, most of the people who still go to Starbucks are very corporate and Howard Schultz's tirades against corporate America don't help Starbucks' cause."
The big driver of these numbers according to Zandl is convenience. Noble Romans, the pizza brand opening more stores than any other restaurant business, is "all about expanding licensing and franchising into grocery and convenience stores... it's all about the food and convenience these days, not so much groceries of cigarettes and definitely not the gas."
Greg Buzek, President of IHL Group that wrote the report, says there are a few reasons for what looks like a disparity in the trends that the numbers reflect:
- Overexpansion - Subway and Pizza Hut have been prone to this but others also have to retrench after expanding too far, too fast. Dunkin has regional growth opportunities while Starbucks is overstored in many locations.
- Shrinking middle class - More families want to eat out economically. The growth we're seeing in the low-cost dining options is fueled by that. Pizza is particularly an opportunity for families because it's a popular food that is usually low-priced. Coffee works that way too which is why there's more opportunity for lower-priced Dunkin to expand than there is for Starbucks.
Those explanations are good and there's more. Burger King and McDonald's are convenient, low-cost options whose store count is declining. That's telling us that consumers want low price and convenience but they also want newness, they're tired of many long-established brands. In addition, casual restaurant concepts are challenged by newer brands and fresher environments that give consumers the feeling they're new and the next big thing. Hence the decline in store numbers for Applebee's, Ruby Tuesday, Lone Star Steakhouse and others.
Consumers haven't gone into hiding and they're not spending less. They're spending more and there are more new stores — but tastes have changed. One of the most important things about these changes is that they are happening faster than ever before. There's lots of reasons for that and plenty to debate about it but there's no way to avoid the constant adaptation that's now required. Organizations now need to be able to process new ideas at a rate that's faster and more efficient than ever before. If you're a legacy retailer of any kind, it's hard to change quickly enough and that creates an opening for more nimble competitors. It's not enough just to have something new, it has to keep evolving. That's a challenge both for younger companies as well as the established players and it will be for the foreseeable future.