US Retail Store Closures Are Outpacing Openings in 2024: A Closer Look

The retail landscape in the United States has always been a dynamic one, reflecting broader economic shifts and changing consumer behaviors. However, 2024 marks a significant turning point in this landscape. For the first time in several years, the number of retail store closures has outpaced new store openings, signaling a shift that has many industry watchers concerned.

According to CoStar, a leading provider of commercial real estate information, the year 2024 has witnessed a net loss of retail stores—a trend not seen in recent years. As of August 2024, 4,548 stores have closed, surpassing the 4,426 new openings. This net loss of 122 stores contrasts sharply with the positive growth observed in previous years, such as 2023's net gain of 295 stores and 2022's substantial increase of 1,575 stores, as reported by Research.

The retail sectors most affected by these closures are those tied to home goods and home improvement. These industries have been particularly vulnerable to the current economic climate, which is characterized by high inflation and rising interest rates. The home goods sector, once buoyed by the pandemic-era surge in home improvement projects, is now facing a significant downturn.

Big Lots, for example, has announced the closure of 258 additional stores, a stark reminder of the pressures faced by retailers in this sector. Home Depot, another giant in the home improvement industry, has projected a 3-4% decline in same-store sales for 2024, indicating the broader challenges facing the sector. Other retailers, such as Conn's Home Plus, LL Flooring, and Buca di Beppo, have also been forced to shutter locations. LL Flooring, in particular, made headlines by closing 94 stores in just one week.

Despite these closures, the broader retail real estate market has remained relatively tight. According to CoStar data, the national vacancy rate for retail spaces stands at just 4.1%, a figure that suggests ongoing demand for retail real estate, even in the face of increasing closures. Additionally, the square footage of new store openings in 2024, estimated at 79.5 million square feet, still exceeds the 67 million square feet being vacated by closing stores.

This discrepancy between store closures and the relatively low vacancy rate highlights an important aspect of the current retail environment: while some sectors are struggling, others continue to thrive. Discount and luxury retailers, for instance, have continued to expand, capitalizing on their unique market positions.

Why Are Retailers Struggling?

The challenges facing retailers, particularly those in the home goods and improvement sectors, can be attributed to several factors. High inflation has eroded consumer purchasing power, making discretionary spending on home-related products less attractive. Rising interest rates have also dampened the housing market, leading to fewer home improvement projects and, consequently, lower demand for related products.

Moreover, the post-pandemic shift in consumer behavior has played a role. During the height of the COVID-19 pandemic, many consumers invested in their homes, driving a boom in home goods and improvement sales. However, as the pandemic recedes and consumers return to more normalized spending patterns, demand for these products has waned.

The Resilience of Retail Real Estate

Despite the increase in store closures, the resilience of retail real estate offers a silver lining. The low vacancy rate and the substantial square footage of new store openings suggest that the retail market is far from collapsing. Instead, it appears to be undergoing a reconfiguration, with certain sectors contracting while others expand.

This reconfiguration is not entirely unexpected. The "retail apocalypse" narrative that dominated headlines in the late 2010s was driven by the rapid growth of e-commerce and the decline of traditional brick-and-mortar stores. However, the current situation differs in that it is not driven by e-commerce alone but by a combination of economic factors and sector-specific challenges.

Looking ahead, the future of retail in the United States will likely be shaped by several key trends. First, retailers will need to adapt to the ongoing economic pressures of inflation and interest rates. This may involve reevaluating their pricing strategies, optimizing supply chains, and finding new ways to engage with cost-conscious consumers.

Second, the shift towards e-commerce, while not the primary driver of current closures, will continue to influence the retail landscape. Retailers that successfully integrate online and offline shopping experiences will likely be better positioned to weather future challenges.

Conclusion

The rise in retail store closures in 2024 marks a significant shift in the US retail landscape. While certain sectors, particularly those tied to housing, are struggling, the broader market remains resilient. The relatively low vacancy rate and continued expansion in specific retail segments suggest that the current wave of closures is not a repeat of the "retail apocalypse" but rather a period of reconfiguration.

As the retail industry continues to evolve, the ability of retailers to adapt to changing economic conditions and consumer behaviors will be critical to their long-term success. Those who can navigate these challenges may find opportunities in the current downturn, while others may need to rethink their strategies to survive in this ever-changing environment.