Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say
They will have increased competition with both high-end and budget retailers.
If you haven't even gotten started on your holiday shopping, you're really cutting it close. Hanukkah kicks off in just two days, and both Christmas and Kwanzaa are fast approaching. Department stores are a reliable favorite when it comes to getting something for everyone on your list—you can't beat the convenience of one-stop shopping. But analysts warn that this might be the last year you can shop at your local department store of choice, offering a dire prediction of what's to come for major brands like Kohl's and Nordstrom. Read on to find out why these companies are at risk of major closures, according to the latest data.
Retailers have been struggling for some time now.
According to The New York Times, retail sales in November were down by 0.6 percent from October. That may not sound like much, but consider that November has the biggest shopping days of the year—Black Friday and Cyber Monday—rounding out the month. That seemingly minor decline actually points to a significant decrease in discretional spending (buying non-essential items). Americans are still plagued by inflation, even though rates decreased from 7.7 percent to 7.1 percent from October to November.
The struggle is real, and it has been for some time. Retailers were shuttering stores even before the COVID pandemic, when online shopping proved a major threat to brick-and-mortar stores. Since 2015, the "retail apocalypse" sent 141 companies into bankruptcy, business analytics company CB Insights estimated. During the height of the pandemic in particular, approximately 1,800 U.S. stores were closed, according to UBS estimates, Insider reported.
And we're not out of the woods yet, as larger retailers are facing impending closures—which could start as soon as next year.
Analysts say that closures could increase as "challenges persist."
Nationwide department store chains are in danger of losing brick-and-mortar locations, USB analysts predicted. There are mounting fears of a recession, which would seriously impact sales for these "mid-tier retailers," Insider reported.
"These trends are likely not good for department stores as both luxury companies as well as off-price retailers compete directly with department stores," UBS analysts Jay Sole, Mauricio Serna, Shoshana Pollack, and Tiffany Agard wrote. "We expect department stores to close locations as challenges persist."
Analysts didn't specify the number of department stores on the chopping block, but closures over the next five years could be staggering. In April, UBS predicted that anywhere between 40,000 to 50,000 retail stores would close by 2026, CNBC reported. That number was down from the 80,000 closures projected in 2021, but it's still significant.
Department stores are at a higher risk, per CNBC, as they're located in shopping malls, which have decreased in popularity in recent years. And that list of department stores at risk includes historic and big-name brands Kohl's, Nordstrom, and Macy's.
Sales have slowed down for Kohl's and Nordstrom.
Store closures during the retail apocalypse actually benefitted stores that were able to stick it out and survive. These retailers saw a decline in competition and were then able to drive sales by adding new departments and partnerships, as well as smaller-format shops and off-price stores like Macy's Backstage.
According to Insider, department store closures have leveled out since 2021, but in the current market, Nordstrom and Kohl's are "left with too many stores as consumer spending wanes." Both companies were reporting higher sales halfway through 2022, but this boom has since slowed down.
During their respective third-quarter earnings calls, these retailers reported fewer sales in October and November, when compared with the same period in 2021, Insider reported.
Best Life reached out to both Nordstrom and Kohl's regarding potential closure plans, but has yet to hear back.
Experts have been predicting trouble.
In September, Mark Cohen, director of retail studies at Columbia University, told Insider that department stores struggle when their regular consumers spend less, as wealthier customers are more likely to seek out dollar stores and bargain chains like Walmart and T.J. Maxx.
This is exemplified by reports that more middle- and high-income shoppers are heading to Dollar General and Dollar Tree stores, both of which reported higher sales in the second quarter than they had the year prior. As a result, stores like Kohl's and Nordstrom that toe the line of luxury and affordability are in a pickle.
"These middle players, the middle to better players like Macy's and Nordstrom, are kind of trapped," Cohen said. "I suspect there's going to be a whole round of restructures, bankruptcies, all sorts of upheaval, as we approach the end of the year into next year."'