Retailers are closing thousands of stores following years of declines in sales and shopper traffic.
While the closures could cripple hundreds of shopping malls, many analysts believe that shrinking store footprints is necessary to restore health to many of today’s ailing retailers.
But according to one former retail executive, closing stores isn’t a path to profitability. Instead, it’s a warning signal that a retailer is in an irreversible death spiral.
In a column for Fortune, Steven Dennis, a former executive at Neiman Marcus and Sears, says “store closings are hardly the panacea that Wall Street seems to believe.”
“The notion that a brand can shrink its way to prosperity is typically horribly misguided,” he writes. “Show me a retailer that is closing a lot of stores and you’ve likely shown me a retailer that doesn’t have too many stores, but a retail brand that is no longer relevant enough for the stores it has.”
Instead of wiping out hundreds of stores, retailers should fix the underlying problems ailing their businesses, he argues.
“The danger of closing too many stores is increasingly real,” he writes. “The danger that struggling retailers will continue to appease Wall Street’s thirst for taking an ax to store counts instead of working on the underlying fault in their stores seems, sadly, clear and present.”
The underlying problem for some retailers has to do, in part, with a lack of investment in their exsiting physical stores.
For example, Sears and Kmart shoppers and store employees say the stores are dilapidated and falling apart following years of underinvestment.
Shoppers also complain that they often can’t find a cashier to check them out.
Sears is closing 150 Sears and Kmart stores this year following years of sales declines. The company has said the closures, along with other measures, will return Sears to profitability.
In addition to underinvestment in stores, many retailers are failing to differentiate themselves from competitors, according to Dennis.
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