The End of the Big-Box Era

Poor customer service and ill-informed employees have driven consumers away

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The End of the Big-Box Era

When big-box retail chains like Circuit City, Dillard’s (NYSE:DDS), and Office Depot (NYSE:ODP) started to close doors in 2008 and 2009, it made sense. The recession crimped consumer spending, and these oversized, over-staffed, and over-inventoried stores had to shed some dead weight in order to survive. A funny thing happened on the road to recovery in 2010 and 2011, though: These big-box retailers didn’t pull out of their nosedive. More casualties are on the way, and unfortunately — not to mention needlessly, in many cases — these retailers are powerless to prevent their own demise.

What separates the survivors from the also-rans? It’s not an easy answer, but there is an answer. Investors, take note, because the men are about to be separated from the boys in a contest that really should have happened a long time ago.

More Than a Few, and More than a Fad

Make no mistake about it — big box retailers are a dying breed. Were it just one or two struggling to stay above water, we could probably just chalk it up to poor decision-making or off-target marketing. When a bunch of them are in dire straits, though, it’s not weak management; it’s an epidemic without a super-clear cure.

  • Best Buy (NYSE:BBY) recently decided to close down its 11 United Kingdom stores, each of which qualifies as a big-box unit, after closing its namesake stores in China in early 2011.
  • Sears Holdings (NASDAQ:SHLD) announced a few days ago that it will be shuttering around 100 stores.
  • In October, Lowe’s (NYSE:LOW) revealed plans to close 20 stores and reel in plans to open new ones.

And the list goes on: Border’s, Linens ‘n Things, and more.

These aren’t just closings for the sake of appearing to care about every penny making (or not making) it to the bottom line, either. These outfits are in real trouble. Sales at Sears stores open at least 12 months, for example, have fallen every year since the new company (which includes Kmart) was recreated in 2005. Sears and Best Buy are facing similar struggles.

Even the venerable Wal-Mart Stores (NYSE:WMT) is struggling.

Sure, Wal-Mart hasn’t been closing stores left and right, and it has actually been growing its top line. But only international growth is improving. In the middle of the year, the world’s biggest retailer posted its eighth straight quarterly decline in domestic same-store sales. We’ve seen hints that the domestic revenue downtrend has slowed in the meantime, but it’s a tepid and questionable trend turnaround.

In a similarly startling statistic, data from CoStar Group shows that the square footage of new shopping centers developed in 2010 reached a 40-year low. Only 12 million square feet of shopping-center space — versus an average of 132 million — was finished in 2010. No final tally on 2011’s builds, but considering that mall-vacancy rates ended the third quarter of 2011 at a record 9.4%, it’s hard to imagine why last year’s total build-out would be any better.

What’s Going On?

Of course, the million-dollar question particularly if you’re one of the retailers with your head on the chopping block — is “what’s causing this phenomenon?” If you can answer that, you might have a shot at surviving, right?

Well, no, not really…at least not in this case.

The smartphone (and by extension, the Web) is getting the bulk of the blame for the demise of  monster retailers. Of course, it’s not helping. But there’s a bigger issue at hand than just a lot of competition on the Web.

 
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Article printed from InvestorPlace Media, http://investorplace.com/2012/01/the-end-of-the-big-box-era/.

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