In assessing the impact of e-commerce on retail real estate, one way of getting a quick take is to look at the number and pattern of store closings and openings in countries where e-commerce is strong.
Two such countries are the US and the UK. In the former, the e-commerce share of retail sales has reached almost 15 per cent; in the latter it is now well above that mark. How is that being reflected in the way retailers are managing their store fleets?
To find out, we turned to data on store opening and closing announcements in both countries compiled by Coresight Research, a consultancy with offices in New York and Hong Kong. Of course, competitive pressures from e-commerce are by no means the only reason that retailers close stores in the US and the UK: it must be remembered that store-based retailers have been pushing sales online themselves as a deliberate strategy. And there are other factors behind store closings too: oversupply of stores, format obsolescence and poor management decisions, to name just a few.
Whatever the cocktail of reasons, last year was another one of massive consolidation in the brick-and-mortar retail sectors of both countries, and the shakeout is concentrated in specific categories. Let us take a look at both countries in turn.
The US
Stateside, it was another year of continued shrinkage of the kinds of retailers that have traditionally taken a lot of physical retail space. Overall, the US chain stores monitored by Coresight Research, announced just over 5436 closings, compared with 2963 openings.

The worst-hit sector was department/discount department stores, with a whopping 925 closures, or 17 per cent of the total. This is a big increase even on 2017, when the category accounted for 11 per cent of the approximately 6885 US closures. While e-commerce was an aggravating factor in these closures, both ‘full-price’ and discount department stores have had a long-term format obsolescence problem that pre-dates the e-commerce boom. A lot more closures can be expected going forward.

The second-biggest closure category last year was toys, although this was attributable to the demise of just one retailer – Toys R Us – which accounted for 16 per cent of all the US closure announcements. Toys R Us has long been under pressure because of competition from the discount department store sector – most notably Walmart and Target – and from the shift of toy purchases online.
Third and fourth among the store closing categories – apparel and home furnishings respectively – provided more bad news for shopping-centre operators, since they have been mall mainstays for decades. Between them, these categories accounted for 1325 closings, and if you throw in related categories like kids clothing and accessories, the numbers get even uglier.
The chart on store openings presents a lopsided picture: discount variety stores are far and away the most important category, with 45 per cent of all opening announcements. A sign of the times, for sure.
Another important and popular category to note is off-price stores, which sell branded apparel and home furnishings at sharply discounted prices in a superstore format. The key players in the US are TJ Maxx and Ross. Collectively they announced 236 openings in 2018.

The UK
The UK also suffered a net loss of chain stores, with the 1395 announced closings far exceeding the 784 opening announcements. That was a worse outcome than last year, when closings and openings were roughly in balance.
Leading the closings was discount variety because one retailer – Poundworld – was forced to liquidate its 335 stores. This might come as a surprise given the popularity of the category, and its demise has been variously attributed to a number of factors, including the falling value of the pound, tight competition and some poor management decisions by TPG Capital, the chain’s owner.
The digital/home-electronics sector came second with 315 closings, and apparel (182 closings) and home department/discount department stores (140 closings) were also hard hit.
On the positive side of the ledger, UK store opening announcements were led by grocery stores, which accounted for 44 per cent of all openings.
Putting all this together, we are seeing in both countries a shift away from the traditional general merchandise stores – department and discount department stores – and the apparel and home furnishings specialty stores that have been mainstays of retail real estate in past years.
In their place, food retailers and value concepts such as variety and off-price stores are becoming more important. However, these are not opening in sufficient numbers to offset the decline in the traditional mainstay categories. This puts the pressure on plentiful, lower-quality retail real estate, meaning High Streets in the UK and second- and third-tier shopping centres in the US. (More than 40 per cent of US retail space is in shopping centres, while less than 25 per cent of retail space is in shopping centres in the UK.)
It is not all bad news for retail property though, since opportunities are opening up in non-traditional categories. It does, however, increase nervousness around rent and occupancy levels.
Landlords can still sleep at night, but the slumber is getting steadily more restless.
This feature originally appeared in the Inside Retail Hong Kong’s magazine edition, available by subscription in digital or print versions.