The mall is dying. So, perhaps, is the strip mall. At least that’s how I read the decision by Kohl’s (NYSE:KSS), the discount department store chain that built its stores in out-parcels and strip malls, is going to sublease space in 10 of those stores. KSS stock closed down 1.84% yesterday.
News of the sublets to exercise chain Planet Fitness (NASDAQ:PLNT) came as CEO Michelle Gass, one of the smartest retailers working today, announced non-GAAP net income of $366 million, or $2.24 per share fully diluted, on revenue of $6.82 billion for the quarter ending in February, blowing past estimates of 72 cents per share.
Strangely, this was also heralded as good news.
Retail’s Death Spiral
Retailing was a leisure activity in the twentieth century. Not so in the twenty-first. Getting what we need is work. We buy or we stay home. We’re either going out with a list, or shopping online in stores that never close.
So the good earnings news in 2019 is coming from stores like BJ’s Wholesale Club (NYSE:BJ), a Costco competitor, which announced record earnings of $62.1 million, or 44 cents per share, on revenue of $3.4 billion for the quarter ending in February. Comparable store sales were up 2.8%, the company said.
Dollar Tree (NASDAQ:DLTR), whose discount stores, often located next to mainstream retailers, offer super-low prices on accessory items and gifts, also beat estimates with same store sales up 3.2%, but reported a net loss of $2.31 billion, or $9.66 per share, after taking a $2.73 billion charge on the 2015 acquisition of Family Dollar.
Save Me Time
The common theme in all these announcements is a demand from consumers to save not just money, but time, too.
Department stores like JC Penney (NYSE:JCP), with wide aisles filled by a variety of goods, inviting a long visit, are dying. The exception to mall mortality is Nordstrom (NYSE:JWN), which beat estimates on earnings through “appointment retailing,” clerks who become stylists for their customers, with the right merchandise ready when they come in. But even Nordstrom reported a shortfall in sales.
Retailers who save neither time nor money are closing-up shop.
Gap (NYSE:GPS) announced March 1 it is shuttering many Gap stores and spinning out Old Navy, a low-price “buy” store, into a separate company. Investors sent the stock from $25 per share to nearly $30. Stock in L Brands (NYSE:LB) has fallen by more than two-thirds since 2016 as stores like Victoria’s Secret and Bath & Body Works, which require time from shoppers, fade. Even Foot Locker (NYSE:FL), which reported strong results, is closing stores.
Bottom Line on Retail Stocks
The growth of strip malls, where people can drive right up to the entrance, as opposed to shopping malls with hundreds of retailers laid out along air-conditioned aisles, is part of an evolution from consuming as a lifestyle to consuming as a chore.
Stores that adapt to this change, either by helping people combine trips as Kohl’s wants to do, doing the thinking for them as Nordstrom does, consolidating them like BJ’s does, or combining online ordering with pickup as Target does , can survive in the new environment.
Those that can’t, like JC Penney, Abercrombie & Fitch and L Brands, may not.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.