Closings Highlight Retail Woes Excess Stores Trigger Shakeout In Overbuilt U.S. Retail Industry

In the last two weeks, Montgomery Ward filed for bankruptcy protection and Levitz Furniture said it’s in trouble. Builder’s Square and Hechinger’s cobbled together a weak chain of stores. Woolworth’s just gave up and will close forever.

Then on Monday, Kansas City-based Payless Cashways Inc., the fourth-largest home improvement retailer in America, also filed for bankruptcy protection.

What’s going on?

Simply, there are just too many places to shop in America and too many ways to shop - traditional department stores, warehouses, discounters, catalogs, television, the Internet.

And there aren’t enough shoppers.

“There’s a thread,” said retail consultant Kurt Barnard.

“Each and every (retailer) had serious problems of its own, but if you go back further you see America is totally, totally, awfully overstored.”

The numbers back him up.

In 1970, there were 7 square feet of retail space for each man, woman and child in the United States. By 1996, that number had tripled to 21 square feet.

In Great Britain, where retail failures are rare, there’s a paltry 2 square feet of retail space per person.

According to retail consultant Gary Wright, the baby boom generation fueled the overstoring of America. Retailers, eager to tap boomers’ wallets and purses, just kept piling on the merchandise.

“This huge generation of people got out of school, got jobs, got married, bought a house, had a baby - they needed all this stuff,” Wright said. “Retail square footage exploded in the ‘80s.”

Now, boomers have started turning 50.

“Fifty-year-olds have a house, a car, a TV, a VCR, a microwave - they don’t need all this stuff but there are more and more retailers trying to sell it to them,” Wright said. “Spending has gone elsewhere, but square footage continues to grow.”

The bottom line is that eventually the two conflicting factors, the decline in demand and the overcapacity of stores, will collide, precipitating retail disaster.

And it’s the weak and wobbly stores - with too much debt, bad management, lack of focus - that teeter and fold first.

Several years ago, retailing consulting firm Management Horizons predicted that from 1990 to 2000, half of all retailers would go out of business.

Wright doesn’t see the situation as being that drastic, “but certainly I see why they made that prediction.”

He does predict that square footage will start to decline between now and 2000.

Sometimes, said Texas A&M Professor James McNeal, who’s been studying retailing for 40 years, it’s just particular geographic areas that have too many stores; others don’t have enough. Retailers follow the people, and if people move from one area to another, they leave a trail of failed retailers behind.

Not all struggling retailers get left behind. Not so long ago Sears, Roebuck and Co. was at death’s door, said consultant Barnard.

“I remember thinking if Sears doesn’t do something fast and if it doesn’t do something drastic, it’s history,” he recounted.

Not only has Sears survived, but it has thrived, he said. The retailer already knew its customers were women, but they shopped Sears for sewing machines and washing machines and refrigerators - not clothes.

“Buying fashion at Sears was an oxymoron,” Barnard said. “But they found the way to make it true with a series of changes capped with the now historic ‘Softer Side of Sears’ campaign - it worked.”

Peter A. Chapman, who publishes newsletters on companies working through bankruptcy, including one on Payless Cashways, is feeling pretty good about Payless’ prospects, particularly when compared to the bankruptcy filing of Montgomery Ward.

“The contrast between the two is stark,” Chapman said. “Payless has a plan” while Montgomery Ward has yet to settle on a strategy.

That mirrors the situation that brought Ward down, he said. It has gone from a catalog company to a low-priced mall store to an electronic and home goods store.

“It’s like, ‘Let’s bring in potato chips - put them on the left; no, put them on the right; no, better yet, put them on the ceiling.”’ McNeal has been hearing about retailer woes since the 1950s.

“Back then it was those dirty, old, nasty discounters that were going to drive department stores out of business,” he said.

McNeal is sympathetic to the thousands of people put out of work each year by the shifts of retailing. But, he contends, the retail energy that dies at one retailer gets transferred to another.

Thinking about a store that closed in his town of College Station, Texas, McNeal said it was a bad store selling bad merchandise at bad prices, by people with bad attitudes.

He was relieved for himself and his neighbors when it closed.

Fifteen thousand retailers go out of business each year, most simply because not enough people spend enough money to support them, he said. But when a bad store closes, “how merciful for the customer.”

“People always feel sorry for the retailer: What about the customers who had to shop there before they closed?”