Recent analysis shows that the continuous rise in prices has made Americans less willing to spend, coupled with a series of operational difficulties and bankruptcies, the retail industry is facing challenges. So far this year, nearly 3,200 physical stores have closed their doors.
According to a report by the retail data analysis company CoreSight, the number of store closures has increased by 24% compared to a year ago. Despite some retailers still planning to expand this year, the number of new openings by large chain stores has decreased by 4% compared to the same period last year.
Some retailers are facing operational management challenges and bankruptcy issues, such as Rite Aid (one of the largest pharmacy chain stores in the United States) and the teenage fashion brand Rue21. Other businesses are dealing with customers who are reluctant to spend due to inflation, and even theft in stores, such as Family Dollar, a grocery chain store.
Family Dollar recently announced the closure of more than 600 stores in 2024. Neil Saunders, Managing Director of data analysis consulting company GlobalData, believes that Family Dollar is taking action to eliminate underperforming locations.
Saunders added that although consumer spending has remained stable this year, there are signs of consumer fatigue, and retailers need to ensure strong financial positions to face future challenges. “This means optimizing store operations.”
Physical retailers are also struggling to cope with strong competition from e-commerce giants like Amazon.
Some companies have encountered issues in their marketing strategies, like the clothing store Express. Express filed for bankruptcy last month and announced the closure of 100 out of 500 stores. Saunders stated that while the store was known for office fashion, it failed to understand consumer needs and adapt successfully during the work-from-home trend.
Recent data shows that Americans are still spending. Consumer spending increased by 0.8% in March, which economists say represents robust growth.
However, some indicators suggest that consumption is starting to slow down in the face of a mild economic slowdown. The University of Michigan’s Consumer Sentiment Index for May dropped to 67.4, the largest monthly decline since mid-2021. Jeffrey Roach, Chief Economist at financial advisory firm LPL Financial, stated that consumer confidence is declining due to rising inflation expectations and weak economic growth.
During the pandemic, the U.S. government distributed cash and other benefits to stimulate consumption. Roach noted in a recent report that consumers have now spent the extra funds they saved during the pandemic. He said, “There is potential risk for consumer spending as households deplete their accumulated savings, which could lead to a decline in discretionary spending.”
Nevertheless, some retailers still plan to open hundreds of new stores. CoreSight, the retail data analysis company, pointed out that Dollar General, a competitor of Family Dollar, plans to open more than 800 new stores this year, becoming the retailer with the most new store openings this year.
In second place is 7-Eleven, which plans to open over 270 stores in the United States this year, followed by the discount store Five Below, planning to open 227 stores.