Overview The coronavirus pandemic is wreaking havoc on retailers worldwide. In this context, Coresight Research predicts that we could see over 15,000 store closures in the US this year (gross—i.e., not accounting for openings). This follows a record year of around 9,548 closures in 2019. The coronavirus outbreak will provide a sharp shock to physical retail. As stores shutter and consumers avoid public places, we expect shopper traffic to discretionary store formats to slow to a trickle, even if there is not a total lockdown. The timescale for store closures and the prospect of a nationwide lockdown in the US remain unclear at the time of writing. However, many US retailers announced temporary closures in mid-March, and although most of these were set to be effective for two weeks, we are skeptical that stores will be able to reopen in early April. Shoppers appear to think likewise: A Coresight Research consumer survey, undertaken on March 17–18, found that only 7% of respondents think that the serious disruption will last less than one month, a further 32% think it will last one to two months and the remainder think it will last longer than two months (including 9% who don’t know). The impact will be especially hard on retailers of discretionary goods, with apparel retail, department stores, home and home improvement retail and electronics and appliances retail set to be significantly affected. Retailers dealing in essential goods such as grocery and pharmacy should see sustained demand, including a surge in the short run. However, every sector is likely to be impacted as the economy is on the cusp of a recession, and we expect to see a massive shake-up in store-based retail as a consequence. We anticipate that some of the retailers that have recently announced temporary store closures—including some well-known names—will never reopen their doors. The enforced closures will hit retailers with limited cash/low liquidity, those already pinched badly by structural shifts and company-specific weaknesses, and those which are unable to translate whatever remaining consumer demand there is into sales on their websites. Year-to-Date Store Closures Coresight Research has recorded a total of 1,883 planned US store closures so far this year, as of March 20—GNC (304 store closures), Papyrus (178), Modell’s Sporting Goods (153), Art Van Furniture (125) and Gap (108) account for almost half of this total. Other retailers, such as Pier 1 Imports (450) and Stage Stores (200), have announced significant numbers of upcoming closures, although they have not yet indicated whether these will all transpire in 2020. Given that the severe impact of the coronavirus has only recently been felt in brick-and-mortar retail, we do not expect the year-to-date trends to be representative of the full-year pattern for store closures. The total year-to-date closures in 2020 are currently significantly lower than this time in 2019 (see Figure 1), but we predict that there will be a major uptick on the back of plummeting discretionary demand. Figure 1. Announced US Retail Store Closures and Openings, 2018–2019 and 2019YTD vs 2020YTD [wpdatachart id=32] *2019YTD is through March 20, 2019; 2020YTD is through March 22, 2020. Source: Company reports/Coresight Research.   Breaking the numbers down by sectors, the apparel, footwear and accessories sector has had the most number of announced store closures so far in 2020 (638), followed by grocery (423) and home and office retail (209). Analyzing the trend in US store closure trends since 2015, we can see that the number of closures has tended to subside following a peak year (as shown in Figure 2). However, given the expectations that we discussed above, that trend looks likely to reverse in 2020. Figure 2. US Store Closure Trend for the Period Between 2015–2020 [wpdatachart id=33] *2020YTD is through March 22, 2020. Source: Coresight Research. Temporary Closures Aside from the permanent closures charted in the section above, the coronavirus has prompted a number of retailers to shut their stores. By March 18, 2020, more than 75 major US retailers—including Apple, Aldi, Gap, Macy’s and Nike—had announced the temporary closure of their stores or had begun operating under reduced working hours, and this number will grow as the outbreak continues. While the store closures are ostensibly temporary—with most planned to be effective for around two weeks—these closures may mark a tipping point for a number of struggling and indebted retailers. Those with the cash to fund a long shutdown and those that can sustain demand online in the meantime stand the best chance of reopening all their stores once the economy and retail environment reaches a semblance of normalcy. In addition to the announcements made by retailers, Simon Property Group, the largest mall operator in the US, has also confirmed that its full portfolio of domestic malls and outlet centers will be closed between March 18 and March 29. As we noted earlier, we believe that such a short shutdown of physical retail (up to two weeks) is optimistic. Bankruptcies Following more medium-term store closures, we expect to see a spate of bankruptcies this year as the debilitating impact of the coronavirus on sales will likely quell hopes of survival for a number of struggling retailers. Moreover, we may see more retailers go straight to Chapter 7, wherein companies liquidate their assets. In normal circumstances, struggling retailers tend to file for Chapter 11 bankruptcy protection, in order to continue operating by restructuring their debt. This kind of bankruptcy filing typically spans several months, and companies need access to credit in the interim. However, when there is a credit crunch, these retailers will find it more challenging to obtain funding and may have no other resort but to file for Chapter 7 bankruptcy. In this extraordinary time of crisis brought about by the coronavirus, the latter scenario may become the new norm. The table below lists year-to-date bankruptcy filings. Although it currently comprises only six retailers, we expect this list to balloon over the course of the year. Figure 3. Selected Retail Bankruptcy Announcements, 2020YTD [wpdatatable id=96] *Fairway Market filed for bankruptcy for the second time after entering and exiting bankruptcy in 2016 Source: Coresight Research   Implications for Malls Even before the coronavirus outbreak, many regional malls were being hit by a cycle of reduced shopper traffic and heavy store closures in the core apparel sector. This shift came about amidst an environment of e-commerce disruption and the trend of discretionary spend incrementally shifting from products to services, as shoppers prefer to spend on experiences rather than discretionary product purchases. The physical retail landscape is seeing store-rationalization trends, as retailers look to optimize their brick-and-mortar fleets in the context of the migration of sales to online channels. With the rationalization of mall space typically lagging behind store closures, the coronavirus-driven shutdown could represent a turning point for shopping centers, prompting rationalization of mall space through 2020. Summary Outlook Although US year-to-date store closures in 2020 are lower than this time last year, the coronavirus outbreak has effectively displaced the comparison as we look at expectations for the full year, as the impact that the pandemic has already had on physical retail is an ominous sign for the rest of 2020. In the weeks and months to come, a number of retailers will shutter stores both temporarily and permanently, while many other companies will likely remain closed indefinitely. Coresight Research predicts that we could see over 15,000 store closures in the US this year (gross—i.e., not accounting for openings). We expect Chapter 7 bankruptcies to rise over the course of the year, especially if the coronavirus lingers around for the medium term. Furthermore, physical retail in the US—particularly in malls—is set to see a correction that has long been overdue. In the meantime, retailers across sectors will have their resources and resolve tested, regardless of their financial and operational health, as they seek to emerge out of the current chaos with minimal adverse, long-term consequences.[/vc_column_text][/vc_column][/vc_row]