As the holiday season reaches its peak, the retail industry finds itself at a crossroads. While consumer spending appears healthy, the retail landscape is becoming increasingly polarized, with thousands of brick-and-mortar stores preparing to close their doors in 2025. A recent report from CoreSight reveals that approximately 7,100 store closures were announced nationwide through November 2024 — a staggering 69% increase compared to the same period last year.
For investors, the question is clear: Is this a sign of broader economic distress, or does it reveal opportunities to capitalize on shifts in the retail sector? Let’s dive into the factors driving this trend and explore what it means for those invested in retail real estate, retail-focused REITs, and the evolving omnichannel marketplace.
Why Are Retail Closures Accelerating?
While the retail sector as a whole is not in decline, many brands are struggling due to a perfect storm of economic challenges, oversaturation, and shifting consumer preferences. According to Neil Saunders, a retail analyst at GlobalData, "There is not enough growth in the retail market for every player to do well, which is why we are seeing polarized results.”
The closures aren’t isolated to small, struggling chains; they are hitting well-known brands, with Family Dollar, CVS Health, Big Lots, Conn’s, and Rue 21 topping the list of announced store closures this year. Family Dollar alone is shutting down 677 stores, while CVS follows closely with 586 closures. This widespread distress raises two key questions for investors:
Is the broader economy weakening, or are these closures tied to company-specific weaknesses?
What does this mean for retail landlords and investors tied to physical retail assets?
The Role of Economic Headwinds
While broader economic conditions play a role, many of these closures stem from issues beyond macroeconomic challenges. According to analysts, most chains closing stores are dealing with outdated business models, poor differentiation, and operational inefficiencies rather than just external pressures.
For instance, Family Dollar has faced significant challenges since its $8 billion acquisition by Dollar Tree in 2015. Earlier this year, Dollar Tree announced plans to shutter nearly 1,000 Family Dollar locations, citing weak performance. Similarly, CVS Health, which announced 586 closures, is struggling alongside its peers in the pharmacy sector, such as Rite Aid and Walgreens, both of which announced hundreds of closures in 2024.
CVS’ issues reflect larger problems in the drugstore sector:
● Rising operating costs: Drugstores are experiencing increased occupancy costs and wage pressures in a tight labor market.
● Lack of differentiation: The retail pharmacy sector is struggling to distinguish itself from competitors, leading to dwindling sales.
● E-commerce disruption: The convenience of online prescription services and digital health platforms is eroding demand for traditional brick-and-mortar pharmacies.
As Mark Sigal, CEO of Datex Property Solutions, succinctly puts it, "Undifferentiated retail is dead.”
The Shift Toward Differentiation
Despite the closures, brick-and-mortar retail is far from dead. In fact, many retail segments are thriving, but success increasingly hinges on a retailer’s ability to differentiate. Shoppers are becoming more selective and value-driven, focusing on experiences, convenience, and unique offerings.
For example:
● Discount and value retailers: Chains like Dollar General and TJ Maxx continue to grow, offering competitive pricing and curated selections that appeal to bargain-hunting consumers.
● Omnichannel operators: Retailers that integrate physical stores with strong e-commerce platforms, such as Target and Walmart, are thriving by providing consumers with flexible shopping options.
● Experiential retail: Brands that offer unique, immersive in-store experiences are succeeding in attracting foot traffic, even as traditional retail struggles.
This shift toward differentiation presents opportunities for investors who can identify the winners in this changing landscape. Retailers that focus on providing value, convenience, and experiences are likely to thrive, while those that fail to adapt will continue to shutter stores.
What Store Closures Mean for Real Estate Investors
The wave of store closures has significant implications for retail real estate investors, particularly those invested in retail-focused REITs or landlords with significant exposure to struggling chains.
1. Increased Vacancy Rates
Mass closures will likely lead to higher vacancy rates in certain retail submarkets, particularly in locations reliant on distressed chains. This could put downward pressure on rents and property values, particularly for secondary or tertiary retail centers.
2. Opportunities to Repurpose Space
While closures present challenges, they also create opportunities to repurpose retail spaces. Investors should explore alternative uses for vacant properties, such as:
● E-commerce fulfillment centers: Many big-box stores are being converted into last-mile delivery hubs to support growing online sales.
● Medical offices and clinics: As healthcare providers expand into suburban markets, retail spaces are increasingly being repurposed as medical facilities.
● Mixed-use developments: Vacant retail spaces can be reimagined as part of mixed-use developments that include residential, office, and community spaces.
3. Opportunities in Thriving Retail Segments
Retail investors should focus on thriving segments like grocery-anchored retail centers and value-oriented tenants, which continue to drive foot traffic and maintain stable occupancy rates. Additionally, experiential retail and entertainment-focused properties are attracting attention from consumers seeking in-person experiences.
Retail Distress as an Investment Opportunity
For savvy investors, retail closures don’t just signal distress; they present opportunities to capitalize on mispriced assets, redevelop underperforming properties, and invest in retail segments that are positioned for long-term growth.
Key Takeaways for Investors:
Focus on Differentiated Retailers: Chains with strong value propositions, omnichannel strategies, and unique offerings are more likely to succeed in the current environment.
Assess Real Estate Risks: Retail landlords must carefully evaluate tenant stability and consider diversifying their tenant mix to reduce exposure to distressed chains.
Look for Repurposing Opportunities: Vacant properties can be reimagined for alternative uses, creating value from underperforming assets.
Monitor Consumer Behavior: As shoppers become more selective and budget-conscious, retailers that align with these preferences will continue to drive demand for physical stores.
The Road Ahead
The wave of retail closures in 2024 highlights a sector in transition. While undifferentiated chains and outdated business models are struggling, retail is far from dead. Instead, it is evolving, with opportunities emerging for retailers and investors who can adapt to changing consumer preferences and market dynamics.
For investors, understanding the root causes of retail distress is critical to identifying risks and opportunities. By focusing on differentiated retailers, thriving retail segments, and creative uses for vacant properties, investors can position themselves to succeed in a rapidly changing landscape.
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