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U.S. Retail Forecasted to Decline Significantly in the Next Decade

U.S. retailers closed 5,994 stores, while opening 2,641, through the first 15 weeks of 2019, according to real estate tracking from Coresight Research.

Retail store turnover has intensified; in the entirety of 2018, there were 5,864 closures announced and 3,239 openings. If the pace of closures continues at the current rate, 2019 will set a new record year for U.S. retail store closures, with a negative net difference of nearly 12,000. A negative trend in reported foot traffic to malls returned after a brief respite in 2018.

Many of the store closures are from retail department stores. This trend does not bode well for restaurants based in malls and shopping centers as retail department stores often serve as an anchor tenants that draw in customers for specific purchases.

Because anchor store customers are initially attracted to shop at the mall and then stick around for the food court, the closing of such department stores will have a large impact on foodservice sales and the direction of the restaurant industry.

The decline of malls and other physical outlets is being driven by the increased popularity of online retail. This phenomenon is predicted to intensify, as UBS predicts market penetration for online retail to rise to 25% from 16% as of 2019.

UBS analysis disclosed that for each 1% increase in online penetration, some 8,000 to 8,500 stores will need to close. In total, UBS predicts 75,000 stores will be forced out of business by 2026, or about 7% of the retail establishments in the U.S. today. The number of grocery stores is predicted fall by 7,000, or 8%, from the current number of 89,500 stores, provided online penetration rises to 10% from its current 2% level.