After a decade of breakneck expansion, big retail chains are slamming on the brakes — hard.
Dana Mixer/Bloomberg News
A Home Depot employee cuts pipe for a customer. The chain will close 15 stores and cut the number of new stores it will open.
Home Depot,
the nation’s largest home improvement chain, said on Thursday that it
would abandon plans to open 50 new stores and would close 15 poorly
performing locations. As part of the belt-tightening, the company will
permanently scale back plans for expansion after 2008, when it will open
new stores at the slowest rate in its 30-year history.
Home Depot
has been hit especially hard by the housing slowdown, but it is not
alone in rethinking its expansion plans. Over the last six months,
chains like Starbucks,
Pacific Sunwear and Ann Taylor have vowed to close a combined 1,000
stores, which is expected to remake hundreds of shopping centers around
the country.
Bill Dreher, a retail analyst at Deutsche Bank
Securities, said chains made overly ambitious plans for new stores
“during a period when consumer spending was unusually robust.”
“But it’s increasingly clear that those expectations were inflated,” he said.
So
like their customers, the stores are slashing their budgets during the
economic downturn. Foot Locker will close 140 stores over the next year,
Ann Taylor will start to shutter 117, and the jeweler Zales will close
100.
Charming Shoppes, which owns the women’s clothing retailers
Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the
Leather Experts will close 158. Pacific Sunwear is shutting a 153-store
chain called Demo.
Even Starbucks is struggling and plans to close 100 stores.
The International Council of Shopping Centers, a trade group, predicts
5,770 store closings in 2008, an increase of 25 percent from 2007.
Many retailers not shutting stores are scaling back plans for new ones. J. C. Penney, Kohl’s and Wal-Mart are slowing their expansion or delaying store openings.
Penney’s
said it would open 36 stores this year, not 50 as planned. Kohl’s,
which had aimed to open 100 stores a year, will build just 75 in 2008.
The
store closings and delayed openings are expected to ripple through the
economy, depriving many communities of sales tax revenue and eliminating
work for commercial construction companies.
Home Depot said that
its new plans amounted to a major shift in its business model, one that
emphasized improving sales within existing stores, rather than achieving
growth by rapidly opening new ones.
In 2007, Home Depot’s
sales-floor space grew by 4.9 percent. In 2008, that figure will fall to
2.5 percent. After that, it will drop to just 1.5 percent, regardless
of the health of the economy, the company said.
The moves will
save Home Depot $1 billion in store construction over the next three
years, cost the chain more than $500 million in write-downs and could
result in hundreds of job losses. Wall Street analysts applauded the new
strategy, which gave a lift to Home Depot’s stock. It rose 4 percent,
to $29.87, on Thursday.
David A. Schick, an analyst at Stifel
Nicolaus, said investors were pleading with companies like Home Depot,
Wal-Mart and Starbucks to focus on the stores they already have.
“The ’80s and ’90s was growth, growth, growth,” he said. “But the stock market wants these stores to slow down.”
Home
Depot said that even though the downturn in the housing market had hurt
its business, the new strategy was not a short-term response to the
state of the economy. It will still open the 55 stores it planned for
2008. But Home Depot will not build 50 stores it has had in the works
for up to 10 years.
Store closings will take place in cities
ranging from Saddle Brook, N.J., to East Fort Wayne, Ind. The closing
stores make up less than 1 percent of its 2,200 locations.
“Closing
a store is always a difficult decision because it affects both our
people and our communities,” said the chief executive of Home Depot, Frank Blake. “But, as with our decision to slow future store growth, this is the right decision.”
Home
Depot’s less ambitious plans for growth follow Wal-Mart’s decision last
year to begin slowing its expansion after years of blanketing the
country with its cavernous stores.
The new strategies are an
admission that some parts of the country are saturated with so-called
big-box stores like Wal-Mart and Home Depot, the nation’s two biggest
retailers.
resource:http://www.nytimes.com/2008/05/02/business/02shop.html?ref=retailstoresandtrade&_r=0
6:52 AM
Vinay Singh
Furqan works in New York, Paris and Singapore, his work can be seen
in Elle, Style Tatler, and more magazines from around the world, so you
know you’re in good hands.
