Some 100,000 Retail Store Locations May Permanently Close By 2025: UBS

Analysts at UBS warned that due to the ravaging effects of the coronavirus epidemic and the inexorable rise of online shopping, some 100,000 retail store locations in the U.S. may permanently close by 2025.

The average U.S. household spent more than $5,800 buying online in 2019, an 11% jump in only one year. This trend is likely to continue.

“Even when stores do open, it may take a while before people will regain their confidence about being safe in crowded places,” UBS analysts Michael Lasser and Jay Sole said.

Clothing, consumer electronics, grocery and home furnishings stores will suffer the biggest loss of customers, based on a projection that online shopping will account for 25% of all retail purchases by 2025, up from 15% currently,

About one in four clothing and apparel retailers will close – or about 24,000 stores – while one in ten electronics retailers will shut down – or about 12,000 closures. Home furnishings and grocery retailers will undergo 11,000 closures each.

As a result of anticipated store closures, at least 100 enclosed shopping malls would have to close – although some of these properties will likely be redeveloped.

Also as the sector consolidates, smaller retailers would be under the most pressure, while the familiar big name chains like Walmart (WMT), Target (TGT) and Costco (COST), as well as large home improvement retailers such as Home Depot (HD) and Lowe's (LOW) are likely to survive this mass culling of retail locales.

"Our overarching belief is that the big will get bigger," UBS said.

But even some large retailers are expected to collapse – most notably department store Neiman Marcus.

“The coronavirus pandemic has raised significant credit concerns about whether U.S. retailers have enough liquidity to survive the coming weeks and months,” Moody’s wrote.

Moody’s noted that Neiman Marcus is owned by private equity firms (Ares Management Corp. (ARES) and the Canada Pension Plan Investment Board).

“Many of the distressed retail companies are private-equity owned and are unlikely to receive a substantial amount of government cash to stem their liquidity needs,” Moody’s warned.

Interestingly, while most grocery stores have remained open as “essential” businesses, more people are now even buying their food online.

UBS also said that dollar stores like Dollar General (DG) and low-price retailers like Ross Stores Inc. (ROST) and TJX Cos. (TJX) may also survive intact.

As for now, hundreds of thousands of retail locations across the country remain closed, forcing many retailers to lay off staff. Meanwhile Papyrus, Modell’s Sporting Goods and Art Van Furniture have also made plans to liquidate.

The closure of retail stores in shopping malls will pressure mall owners to reduce rents or just terminate the lease outright.

Tom Mullaney, head of restructuring services at commercial real estate services firm JLL in Chicago, said: “As [major stores] close and do not reopen, my clients are pulling out their leases. The whole purpose of a mall is to generate large amounts of foot traffic,” meaning the closure of one or two anchor stores will devastate the other stores in the mall.

There are still too many malls in the U.S. as it is – about nine per 1 million households, up from eight malls per million in 1980.

“This is where you’ll really see malls start to suffer,” said Daniel Herrold, a broker for Stan Johnson Co., a net lease firm.