Economist's Commentary: March 25, 2008

Store Closing Numbers in Context

By Scott Ian MacIntosh, Senior Economist, Commercial/Investment Real Estate

Today, newspapers are full of somewhat misleading news on the state of retail markets. “Almost 1,950 stores have closed for business so far in 2008.” What many articles fail to point out is the fact that this number is not too different from the number of store closures from previous years. For example, according to the International Council of Shopping Centers (ICSC) 6,890 stores closed in 2001 and in 5,769 shut their doors in 2004. The ICSC predicts that 5,700 stores will close for all of 2008.

In the world of retailing, the decision to close or open a location is made every day. Those retailers that understand merchandising will stay in business and open new stores in new locations. Anyone familiar with retail site selection will be well-aware that some locations offer better access, wider population base or even better lease terms. Not all store closing are due to the state of the current economy. New retail space is being built and leased, so presumably stores are also opening, otherwise the retail vacancy rate would have skyrocketed. A record of almost 7,000 stores closed in 2001. In 2002, the retail vacancy rate rose by a mere 0.2 basis points.

While store closings are one economic indicator of the retail market, don’t ignore retailers that have planned new opening and the fact that between 2001 and 2007, a total of 165 million square feet of new retail space has been built without any significant increase in the national vacancy rate.

Despite all the negative press, retail sales (excluding automobiles) are still robust and were at an all-time record high in January 2008. The pace of the increase in retail sales has, however, slowed and there could therefore be fewer new stores opening even if closings remain at or near normal levels. One must always remember that there is always a deeper story behind the headlines one reads in the newspaper.

Source: NAR/TWR/ICSC

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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