- A wave of department store closures could hit in 2023, according to UBS analysts.
- Sales are stalling in 2022, but department store closures have stayed flat since early 2021.
A wave of closures may be coming for US department stores.
That's according to analysts at UBS, who predicted this week that national chains could have to shutter some brick-and-mortar locations in 2023 – even those that survived the combined challenges of the retail apocalypse, which devastated the industry from 2017 to 2020, and the pandemic shutdowns.
That's because months of inflation and a looming recession are eating into sales at mid-tier retailers, analysts say.
"These trends are likely not good for department stores as both luxury companies as well as off-price retailers compete directly with department stores," UBS analysts Jay Sole, Mauricio Serna, Shoshana Pollack, and Tiffany Agard wrote. "We expect department stores to close locations as challenges persist."
Even before the pandemic hit in early 2020, retailers were struggling. The decade prior had been disastrous for American retail companies, particularly malls and department stores: As many as 9,300 stores closed in 2019 alone, the result of these brands being saddled with mountains of debt at a time when shoppers were increasingly turning to e-commerce.
Then the pandemic struck, and the industry was hit with an unprecedented number of store closures — according to UBS, the retail industry lost 1,800 stores between January 2020 and March 2021.
Those closures benefitted the stores that remained. Retailers like Macy's, Nordstrom, and Kohl's were able to gain market share by relying on brand partnerships, beauty sales, and off-price stores to drive sales, and adopting new methods to get customers to shop in stores. Midway through 2022, department stores were bucking the otherwise gloomy retail trends, reporting strong first-quarter earnings thanks to resilient shoppers shelling out for apparel and footwear for traveling, socializing, and returning to the office.
But then sales growth began to slow, even as store closures have remained flat since 2021. Department stores like Nordstrom and Kohl's were left with too many stores as consumer spending wanes. Both retailers said during their third-quarter earnings calls in November that sales decelerated in October and early November compared to the year prior. Representatives for Nordstrom and Kohl's did not immediately respond to Insider's request for comment.
Things didn't improve for department stores during the start of the holidays shopping season. According to Commerce Department data, November department store sales were down nearly 3% from last year, and UBS analysts predict department store sales will "remain under pressure" in the first half of 2023.
Mark Cohen, director of retail studies at Columbia University, shared a similar forecast in September. Mid-tier retailers are at high risk when customers pull back spending because they likely won't see enough wealthier customers filling the gap, unlike value-focused chains like Walmart, Costco, and TJ Maxx, he told Insider at the time.
"These middle players, the middle to better players like Macy's and Nordstrom, are kind of trapped," he said.
He added: "I suspect there's going to be a whole round of restructures, bankruptcies, all sorts of upheaval, as we approach the end of the year into next year."