Or Sears or KMart? It is widely known that Sears Holdings is closing 150 of its Kmart and Sears stores this year and Macy’s is shuttering 68 of 100 locations. JC Penney has closed 90 stores in the last four years and expects to close 300 more stores as it adjusts to life as a smaller retailer. The Limited said it was closing its entire fleet of stores altogether in response to drop in retail activity. What is less well known is that Dollar General plans to open 1,000 new stores and two more distribution centers this year. The expansion will give the retailer more than 14,000 stores nationwide and TJ Maxx and Dollar Tree are following Dollar General in expanding its retail presence as well. In many cases, they are planning to buy the stores from those that are closing them down.

Why would these companies go against the obvious shift to online shopping that is sweeping the nation? Their reasoning is predicated on the fact that consumers will flock to closeout deals as stores liquidate merchandise and expect an opportunity to retain both loyalists and opportunists who may have been attracted by those going out of business sales, and who may otherwise go to other retailers.

As convoluted as this theory is, there is precedent to this phenomenon. When Sports Authority, City Sports, Golfsmith and Bob’s Stores all filed for bankruptcy last year, Dick’s Sporting Goods benefited from their woes and found its sales jumping by over 5% from previous year. Having seen this theory at work several times now, some retailers are exploring the possibility of scooping up the failing Macy’s and Sears stores. 

Future Wealth’s View

Stocks of all the companies surged when they announced they were closing stores to cut costs or when they were expanding by buying new stores. But a look at their stock charts over the past 5 years shows a dismal picture of steep losses and significant drop in shareholder value.

Not too long ago, when several DVD rental stores were closing down, Blockbuster CEO expanded, offering more Blu-Ray rentals. The stock shot up, but few years later, the company blew up and filed for bankruptcy. Loyalists and opportunists were nowhere to be seen. Well, they were watching movies at home from Netflix.

Peter Lynch,mutual-fund rock star at Fidelity Magellan in the mid 90s, was widely quoted as saying “If you want to invest in a company, go to a mall and see which store has the most traffic.”  If it is not clear to the CEOs that the retail mall business is a dying breed and that stores selling clothing, tools, electronics, household items etc. are simply not going to exist in the future, there is a serious problem with leadership.

The best option for Macy’s and others would be to sell all their stores to Amazon which will convert them into warehouses in heartbeat. Then, consumers would get same day delivery at no extra charge and fresh grocery delivery within the hour. Now, that is opportunistic and will build loyalty as well.