Many Retail Stores Closing! What Happens Next?

Investor · Fort Worth, TX · Member since 2017 · 43 posts · 7 votes

We're beginning to hear from all over that retail stores are closing and at a very high rate. Amazon and online shopping alike has made it convenient and easy for us to do a one stop shop for things from groceries to shoes then golf clubs, a book and furniture in less than 15 minutes without walking or driving anywhere. Due to this change in retail we have seen large stores begin to close.

First and most notably we saw Blockbuster video a few years ago. Now it has moved onto department and stores like JC Penny, Payless, RadioShack, and much more.

Because of this there is a great number of commercial property without occupants. There will be more casualties along the way as the move toward online sales continues.

My question to everyone is, 'what will happen to these properties?' Surely it will be hard for businesses coming into these properties to keep up with the rate of companies pulling out.

What are your thoughts on what happens to these properties and their owners?

If you had a commercial property like this or do, what would your strategy be from here on out?

Any and all thoughts on the subject are welcome and encouraged!!

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

Media fodder.

I look at over 1 THOUSAND properties a week for retail with my clients. I can say on my experience that these stories coming out is the media running with a snippet to perpetuate news.

Imparting fear into people sells stories for news agencies and gets eyeballs interested in reading the stories agencies are selling.

I have commented in other areas of this forum about retail in depth. When the Blockbusters went out retail developers LOVED it! Locations were very desirable in a lot of situations and easily re-purposed for higher values. Example one property I saw became a bank and a dentist office side by side with national tenants.

Just like any asset class some tenants will not make it for projects. That is the SAME for multifamily or any other asset class. There will be properties that for one reason or another have constant issues with them and hard to keep performing.

Internet makes up about 10% of all retail sales currently. The younger generation is getting more of a (down to earth look) now and having earphones, shoes, other tech gear (phones) be the fashion statement. So a lot of clothes are bought online now for cheaper as it is an afterthought. These clothing places have been going out for awhile.

The mention of Kmart and larger spaces most of my clients do not buy as those do take awhile to find a tenant again for. I have seen some become self storage, some workout gyms, some garden centers, some antique stores etc.

My clients tend to buy retail centers with internet resistant tenants for mix like doctor, nail salon, hair salon, karate school, gym, restaurant,etc.

The sky isn't falling in retail. I get inquiries daily to buy these properties and spend millions of dollars down. Like anything you have to get with an expert who knows the markets and knows what to underwrite for in risk factors. That can make the difference between having a winning property years later or a loser where the buyer has lost their down payment equity by over paying for a property in a substandard location with a bad tenant mix. For retail you need to own good dirt unless you bought the building for next to nothing and you can cash flow with mom and pop retail tenants at warehouse per sq ft leasing rates built in.

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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
9y
It depends on the market you are in, it is a different story from market to market. Many places these are being torn down and mixed use properties are being developed, many just sit there abandoned. Lot depends on the local municipalities and whether the area is incorporated or unincorporated. Local citizens also play a major role.
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Christopher Phillips
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
9y
@Derek Persuit
Interesting question.
What I've seen, many of the stores that closed by me on Long Island have been replaced by other businesses. However, some stores with unusual footprints can take a lot of time to find a new owner/renter. Kmart is a good example, when one closed near me, it was replaced by a Walmart, but took a few years. The Blockbuster that was near me is now a mini-mart, which didn't take that long. But there are other office spaces that have remained empty for several years.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Media fodder.
I look at over 1 THOUSAND properties a week for retail with my clients. I can say on my experience that these stories coming out is the media running with a snippet to perpetuate news.
Imparting fear into people sells stories for news agencies and gets eyeballs interested in reading the stories agencies are selling.
I have commented in other areas of this forum about retail in depth. When the Blockbusters went out retail developers LOVED it! Locations were very desirable in a lot of situations and easily re-purposed for higher values. Example one property I saw became a bank and a dentist office side by side with national tenants.
Just like any asset class some tenants will not make it for projects. That is the SAME for multifamily or any other asset class. There will be properties that for one reason or another have constant issues with them and hard to keep performing.
Internet makes up about 10% of all retail sales currently. The younger generation is getting more of a (down to earth look) now and having earphones, shoes, other tech gear (phones) be the fashion statement. So a lot of clothes are bought online now for cheaper as it is an afterthought. These clothing places have been going out for awhile.
The mention of Kmart and larger spaces most of my clients do not buy as those do take awhile to find a tenant again for. I have seen some become self storage, some workout gyms, some garden centers, some antique stores etc.
My clients tend to buy retail centers with internet resistant tenants for mix like doctor, nail salon, hair salon, karate school, gym, restaurant,etc.
The sky isn't falling in retail. I get inquiries daily to buy these properties and spend millions of dollars down. Like anything you have to get with an expert who knows the markets and knows what to underwrite for in risk factors. That can make the difference between having a winning property years later or a loser where the buyer has lost their down payment equity by over paying for a property in a substandard location with a bad tenant mix. For retail you need to own good dirt unless you bought the building for next to nothing and you can cash flow with mom and pop retail tenants at warehouse per sq ft leasing rates built in.
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Vinod Dasani
Investor · Sugar Land, TX · Member since 2017 · 89 posts · 43 votes
9y
@Derek Persuit - Yes, many business have shut down but then at the same time many new ones have started as well. As we now hear Amazon is also considering opening actual stores. There are still several businesses that cannot go online only e.g Dentist, Physicians, SPA, Beauty Salons, small mom & pop retailers, neighborhood convenience stores etc. With every Kmart goes out of business there came a Sprouts. I know that banks are typically not as willing to loan to strip centers as they used to in the past but if the area is desirable the occupancy rate for retail will be decent. I look to make sure that the property is cash flow positive at 75% occupancy because retail spaces take longer to lease compared to residential.
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Jeff Kehl
Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
9y
@Derek Persuit I tend to agree with most here that Retail is not disappearing, just changing. People will always want to go out and do things including shopping. With retailers it's just survival of the fittest. Those that most successfully combine online with in-person shopping whether that's Amazon adding stores or Walmart selling online will win.
I also think it's about entertainment and experiences and stores that are fun to go to like the Apple Store or Disney store will be fine. As long as they continue to provide a great experience and great customer service.
I do think that retail will get smaller because there's not nearly as much need to keep tons of inventory in the store.
And, as mentioned above I'm a big fan of service-based businesses. Who wants to get their hair cut on the internet or order a freshly baked cookie online?
Finally, some stuff you just don't want to wait for even if it only takes a day or two. When I'm rehabbing a house I order some hard-to-find stuff online but mostly I buy it from Home Depot or Lowes and they're not struggling at all. But if they don't continue to work hard at making their businesses excellent they may eventually lose too.
As an example, I just bought a new car. I went in to a dealership to do it and they made me so mad with all of the waiting and negotiating I bought it online from a company called Carvana that delivered it. I would much rather have bought it in-person at the dealership but the experience and customer service sucked and if they don't change that they too will get displaced.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
There is data that says some people love buying online but that process to returning items back sucks or getting replacements.
The survey cited that over 80% strongly disliked online ordering return processes. The red tape, talking to customer service centers not sometimes in the country, losing returned items the customers sent back, rejection of returns due to a technicality filling something out, wait times for resolution etc.
The customers said they LOVE returning items bought online in brick and mortar stores because they can get the issue handled immediately while shopping for other items and they can talk to a person face to face.
There is also sales tax bills by many states trying to be passed into laws taxing online companies that sell to people when the business is not physically located in that state. Online sales has it's place but it DOES NOT replace brick and mortar retail. Each has it's own positive and negative traits.
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Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
9y
Brick and mortar will remain in play, albeit in a much smaller role. Online sales will continue to push brick and mortar stores to the sideline. The landscape is changing and changing rapidly. Even big box retailers like Walmart are seeing the future of online retailing...trust me, they've done their research and wouldn't be investing in this increasingly valuable form of retailing if they didn't see the future. It's a future where Amazon is ahead of the curve and will naturally be eating into the B&M landscape. People realize they have less and less time to spend in traffic, fewer available free hours away from work, wish to limit their exposure to criminal activity, etc. which will force more and more consumers to forego the more traditional 1960's style of buying.
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Daniel HymanBusiness Member
CPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
9y
My neighbor broke his briefcase strap at seven in the morning. He ordered a new one on "Amazon Now", and it arrived within an hour. He was able to walk into work with a brand-new briefcase without having to step in to a B & M store. Sure, he paid a few more bucks for the convenience, but it sure was worth it. I do agree that there are many Internet resistant businesses out there, but it sure is both exciting and frightening to see the landscape changing before our eyes.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
To the common investor any asset class they are not a specialist in can be seen as scary. For the seasoned investors in a particular space the scary or fear is replaced with in depth knowledge of the markets and where opportunities are in an asset class whether going up,down,or sideways. You are still cautious but highly informed.
It's easier for people to make the leap from single family houses to understand put a bunch of those houses put into one building and you get multifamily. For other asset classes there is not a familiarity correlation like with residential so it is important when investing in the other asset classes to get with experts who can guide the investor and navigate the waters.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Joel Owens I think its location driven in good locations the space get repositioned since there is no land avalaible.
in declining areas like I see in the mid west and deep south that have demographic transfermations and the shopping centers closed years ago never to reopen or reposition.. many that I see have become Monster Church's or simply sit and rot...
Location , location , location.. High median income and props will be repurposed.. low income high crime and those are not going to be repositioned as commercial.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Yeah I am picky on demographics and trends so anything I would buy or my clients are in very good areas most of the time.
Now some clients want to stick to very low price points of 1 to 2 million which properties in great areas cost more per sq ft with the rents so by nature they cannot afford those areas. The client then makes a decision to go higher in price or accept more yield for not a bad area just an average one. I want them going in with eyes wide open but they still make the decision.
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Chris V.
Rental Property Investor · SF Bay Area · Member since 2015 · 154 posts · 179 votes
9y
Maybe the media also made up the Amazon revenue growth numbers (below)?:) Even if some of that income is new, most of it is cannibalizing traditional retail sales.
I worked for 12 years at a software company that made ERP software for small and medium sized businesses. We had over 20,000 locations running int the US. And for the last few years our customer's worry was not the competitor down the street... It was the customer shopping and buying traditional high profit items online. Not everything, but enough to make keeping the store open to sell only the low margin items pretty expensive for our customers (retailers).
As for myself I would call myself a slow adapter, but with Amazon Prime delivering for free the next day, I know where I spend the majority of my money:)
The scary thing about Amazon I think is not so much the actual closure of the physical retail stores but the very high revenue per employee they are generating. At a revenue of about 5X higher than a retail store (and growing) that means that there are less low wage jobs for my tenants... Especially since the type of jobs that fulfillment centers generate tend to require more and more skills as automation is getting more and more advanced. Like who thinks that the people at the end of this video that box up the merch by hand at the end of the line still will have a job in 5 years?: https://www.youtube.com/watch?v=Y-lBvI6u_hw
Of course there is going to be a future for in-store retail in some shape or form, but whatever that future is, I doubt if it is going to be modeled on the past...:(
An upside is that a lot more property will become available for temperature controlled self-storage:)
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Joey Hamaoui
Real Estate Agent · Jacksonville, FL · Member since 2016 · 406 posts · 163 votes
9y
I think most of these large shell spaces like the 100,000+ SF buildings will be converted into call centers, climate controlled storage and possibly medical centers or schools.
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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
9y
Originally posted by @Joel Owens:
Media fodder.
I look at over 1 THOUSAND properties a week for retail with my clients. I can say on my experience that these stories coming out is the media running with a snippet to perpetuate news.
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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
9y
I am commenting on the quote above " LOL 1,000 properties a week in Canton GA? I see about 6 retail properties for lease and about 14 for sale, must be a very slow market with plenty of people looking for bargains! Even in a larger town like Columbus, OH we do not see this kind of volume. As I said every market is different, just talk to brokers from Chicago. I think opinion on BP should be realistic and beneficial to all and not be a self-grandiose, just my opinion!"
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Derek Persuit
OP
Investor · Fort Worth, TX · Member since 2017 · 43 posts · 7 votes
9y
As it pertains to the average investor of these types of properties in declining areas, as @Jay Hinrichs mentioned, what would you all expect to happen to them?
Where and in what way would they focus their business if their buildings were left vacant without being repositioned?
Thank you everyone for your input and commentary so far!! It is much appreciated to get many views on the topic!
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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
9y
Here is another media hype (not) from CNN money quoting Credit Suisse "Between 20% and 25% of American malls will close within five years, according to a new report out this week from Credit Suisse. That kind of plunge would be unprecedented in the nation's history." Here is the link
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Priyanshu AdathakkarPro Member
Realtor · Columbus, OH · Member since 2017 · 313 posts · 245 votes
9y
Seph Lawless tells the story of America through images of its forgotten places.
The urban explorer has photographed ruined factories, collapsed apartment buildings, abandoned amusement parks and, especially, "dead malls" that have fallen into ruin. There is no shortage of them in the region he calls home, the Midwest.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
9y
@Priyanshu Adathakkar it very much has to do with land ,, land use policy and demographic shifts.
out our way and say the SF bay area.. you simply have NO land.. so if a shopping center is obsolete something else will take its place..
in the mid west its FLAT there is really endless land for sprawl.. so when you have demographic shifts and populations move to different areas of the cities.. the commercial follows it.. leaving the old stuff to just wither and die.. I see it in virtually every mid western city I work in and I work in all the major one's 1 to 2 million or more in the metroplex.
So in our fair city Portlandia which has NO sprawl and a critical shortgage of land.. any major shopping type center that is not economically viable.. it would be bull dozed and another use would come right in behind it...
there are also shifts to these semi open air malls as well.. there is a brand new one , or maybe 7 to 8 years old on the north side of Jackson MS... the old malls on the south side of town are all closed and boarded unless there is a Baptist church in them.
I have seen some cool new design's in KC lately...
things change and the strip mall and mall will change nothing ever stays the same
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Hersh M.
Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes
9y
@Derek Persuit Data centers and more fulfillment centers for even faster delivery. Amazon is really spoiling us. lol. Who has the patience to wait these days.
Another article - https://www.forbes.com/sites/adamhartung/2017/02/2...
- There is vastly too much retail space, and nobody knows what to do with it.
- Tax receipts will fall, and nobody knows how to replace them
- The impact on job eliminations will be staggering
- Consumer Goods manufacturers, and their suppliers, will be stressed
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Hersh M.
Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes
9y
Funny future. Waiting for the drone delivery?! lol.
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Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
9y
It is hard to say. I would imagine you will see more stores/places popping up that are more internet proof like restaurants, gyms etc.
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Account Closed
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
9y
Originally posted by @Derek Persuit:
...We're beginning to hear from all over that retail stores are closing and at a very high rate. Amazon and online shopping alike has made it convenient and easy for us to do a one stop shop for things from groceries to shoes then golf clubs, a book and furniture in less than 15 minutes without walking or driving anywhere. Due to this change in retail we have seen large stores begin to close...
I think first you want to get the facts to help filter through media noise and panic in the market. Every year there often is some form of retail location closure. According to data from Credit Suisse (who apparently track yearly retail closures), between 2000 and 2017, the average per year number of retail location closure is about 3321 and the median is about 2720.
The number of closures announced for 2017 is expected to be 8640. The actual number of closures in 2017 may vary from what has been announced by various retailers but if that amount actually close in 2017, that would be a material variance from the historical mean and median.
The yearly closure number per year appears to be somewhat random without any particular credible trend or patern on which it could be stated that retail closure numbers is on the rise. See chart below:
This being said, retail profit margins for many retailers historically have been thin and some negative for multiple periods. In recent years also, many customers transact online than was the case previously, a pattern which may continue in the future. This for many retailers can further put the squeeze on profits for retailers who aren't 'wired up' and rely heavily on instore traffic.
If there are however multiple years of unusually high increase in retail location closures -- that would be reason for contemplation.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
Old malls from the 70's and 80's are simply outdated in most cases and need replacement.
Online sales are not taking over retail. Taking over retail with online holds a lot of substance with retail clothing but not other sectors of retail that are internet resistant.
Priyanshu I do look over 1,000 properties a week nationally. I am born and raised in GA and live in Canton,GA which is in Cherokee county. Have been in Cherokee over 30 plus years. Cherokee just hit unemployment of 3.9%. At 4.0 you basically have zero unemployment as retirees and some that can work are not looking. As an example Denver the other day had an article about 2.6% unemployment there and they had 70k plus more job openings than people to fill them.
Cherokee county is in GA and there are about 595 cities in the state. A recent FBI safety report came out for 2017 for GA and Cherokee county had 3 of the top ranked safest cities in the state
(Canton, Woodstock, Holly Springs). Not much is for sale in Cherokee county you are right. The owners hold onto it like an iron fist for retail. They love the assets and also some are up in age and want to leave the estate to their kids and do not want to sell. Contrary to all of these stories about retail and the boogey man buyers are buying up the good stuff left and right for quality areas. Many of these areas cited in stories I wouldn't touch nor would my clients.
I have clients all over the U.S. so do searches across the country for retail. I have a database built up over 14 years with thousands of companies nationally for retail property management companies, retail brokerages, retail developers, individual ultra high net worth owners, REIT's, and partnerships.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y
One report I read talked about Radio Shack closing 1,000 stores or something. Radio Shack has been on life support for a decade! lol Just like Sears has and all of these other stores mentioned. This is not news. The industry has known about this for many,many years. These companies of course do not want to shine a spotlight on how they are under performing as they have enough to deal with for shareholders.
Sears for instance actually started to have some traction with sales increases in some store segments but the problem is companies will not extend them credit on terms for inventory because they are afraid the company will go out of business. So the suppliers only want to give cash terms. Much of this is the businesses fault along with the counties and cities for sticking their head in the sand and kicking the can down the road instead of getting ahead of the curve for what's to come. Newer malls are doing very well but have a mix of high end food and experiential components that draw in and engage customers in a way they cannot do online. Returning online sales over 80% of customers can't stand it and bring those items to the store to return and shop at brick and mortar. People are acting like online is the holy grail and nothing else matters. If people became really educated on retail on a deep level they would have a better understanding of the asset class.
There are FAILED multifamily buildings all over this country. That goes for any other asset class. Investors really need to take the blinders off. There are no asset classes without risk. Even in a great area you can have a failed project due to project costs to high, bad sight lines, bad access, non-optimal location, bad tenant mix, and on and on.
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Many Retail Stores Closing! What Happens Next?

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Seph Lawless tells the story of America through images of its forgotten places.