The Death of Retail: 77 Million Square Feet of Shopping Space Shuttered So Far in 2018

The Retail Real Estate Glut Is Getting Worse

Stores have announced the closing of 77 million square feet of shopping space so far this year

The fall of the Toys “R” Us chain, with more than 700 U.S. stores, shows how much retail real estate has changed in just the last decade. When KKR & Co., Bain Capital, and Vornado Realty Trust took over the company in 2005, the buyers justified the $7.5 billion price, in part, because of the supposedly valuable properties that came with the deal.

Real estate can put a floor under the value of a retailer and make it easier for the company to borrow. Maybe a particular store concept doesn’t work out as consumers’ tastes change, but in that case, investors can always sell the land and buildings to someone with a better plan. Long-term leases can be similarly valuable. But what if the problem isn’t that a particular store is out of fashion, but that consumers are just shopping less at brick-and-mortar retailers in general? As more storefronts empty, the valuation floor will look wobblier.

The ultimate fate of Toys “R” Us locations will be sorted out as the company sells off its various parts; Isaac Larian, the founder of a toy company, announced on April 13 a last-minute bid to save part of the chain. But the stores wouldn’t be the only vacancies hitting the retail market. While it’s not going out of business like the toy seller, J.Crew Group Inc., which leases its locations, says it’s closing a net of nine stores this fiscal year, after shuttering a net 41 in 2017. Walmart Inc.’s Sam’s Club in January said it will close 63 locations, about 10 percent of its total. At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.

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