Target’s failed expansion into Canada could be a harbinger for the future of the retail industry in the US, according to a report by the asset management firm Cohen & Steers.
Target entered Canada in 2013, and two years later shut down all 133 stores there and fired more than 17,000 employees.
The retail real estate market in Canada still reeling from the retailer’s sudden exit, according to the report.
“It was the company’s first international expansion, and it was a colossal flop,” the report states. “Four years later, Canadian retail property owners continue to feel the impact of Target’s departure in high vacancies and rent pressures across the country.”
The US is now facing a similar scenario.
“We believe the impact of US store closings could similarly affect retail owners for years to come,” says Cohen & Steers, which manages $US58.5 million in assets.
Retailers have announced more than 3,200 store closures so far this year, and Credit Suisse analysts expect that number to grow to more than 8,600 before the end of the year. For comparison, 6,163 stores shut down in 2008 — the worst year for closures on record.
Retailers are also filing for bankruptcy at a staggering rate.
It’s only April, but 10 US retailers have already filed for bankruptcy this year — more than the number that filed in all of last year — and analysts say more bankruptcies are on the horizon.
The decline has been squeezing real estate investment trusts, or REITS, that own regional mall and shopping center properties.
For these REITs, “the threat of increased vacancies and rising costs for redevelopment and re-tenanting caused declines of 14.6% and 11.5%, respectively, in the 12 months ended March 31, 2017,” the report states.
Excluding these sectors, the rest of the REIT index produced a healthy 8.2% total return in that period.
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