Follow the Money: The Retail Apocalypse Isn’t Even Half of the Story

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Despite the dramatic headlines portraying retail as a dying industry, sales are actually up overall, growing $121.5 billion in the first seven months of 2017.

That’s just one of the facts research and advisory firm IHL Group packed into its “Debunking the Retail Apocalypse” report, which balanced the underlying causes of the recent spate of store closures against the roots of the sizeable upticks some segments of retail are experiencing.

If the rosier side of the picture doesn’t align with your current reality, it’s probably because you’re in the apparel industry. There’s no way to put a silver lining on the clouds under which many clothing chains have found themselves this year—and the report doesn’t try.

Department store sales, it said, are down 4.3%, clothing is off by 0.1%, and shoes slid by 0.9% through July.

Meanwhile the DIY and home goods categories have experienced a sales increase of 6.8%, cosmetics and vitamins are up 4.0%, and dollar, off-price and mass merchants as a group achieved a 4.5% increase in sales.

The retail industry will net more than 4,000 store openings this year as mass merchants increase by 1,905 locations, convenience stores swell by 1,700 and supermarkets add 674.

The only net losses in the categories IHL measures are in department stores, which are shrinking by about 400 locations and specialty soft goods formats, which are bleeding more than 3,100 stores.

[Read about why some stores are doing better than others: How Open-Air Shopping Centers Are Sidestepping the Mall Meltdown]

“In total 751 brands are increasing their store counts vs 278 that are reducing their store counts across segments,” the report found. “By percentage, 42 percent are opening stores, 15 percent have a net decrease and 43 percent have no change in store count.”

Twenty-nine percent of specialty soft good chains are closing locations, while 38 percent are opening stores. For department store businesses, it’s an even split with 14 percent opening and closing stores.

Of the 16 chains accounting for almost 5,000 store closures (or 48 percent of the total), 12 are apparel or footwear retailers. Payless leads the group with 700 closures, followed by 400 for Rue 21, and 400 for the Ascena nameplates.

Just 16 chains are driving the store opening trend, with Dollar General in first place with 1,290 new locations. Of the 16, only TJX represents apparel with 111 new stores. Dollar stores, beauty chains and convenience stores were well represented, which, the report said, makes perfect sense. “We see the growth of the stores mostly mirroring what’s going on with the incomes of consumers. More discounters, less mid-range or luxury,” IHL said.

IHL points to the skyrocketing cost of health care, childcare and college tuitions (and the resulting ballooning student loan debt) over the last 20 years as reasons why consumers are turning to cheaper shopping alternatives as they struggle to keep up with inflation.

[Read about the off-price boom: Infographic: Off-Price Store Growth]

Further, the shrinking middle class, which now represents only 50 percent of the population, down from 61 percent in 1971, is directly correlated with the fate of one specific retail format.

“The majority of malls that were built in the last 30 years were in areas thought to be middle class. but it is exactly that middle class and lower class consumer that has been squeezed the most,” the report found.

In fact, the numbers show that in the 45 years between 1970 and 2015, the middle class has gone from controlling 62 percent of the income in the U.S. to 43 percent. And lower class households slid from 10 percent to 9 percent.

As the positions for these two groups grew more tenuous, retailers were frantically opening stores to satisfy wall street. The result, according to IHL, is today’s necessary contraction.

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