3 Companies Closing Stores for Stronger Growth

Brittney Barrett |

The most recent retail results indicated surprising strength in the luxury and low-end market, but the middle-range continued to suffer from the state of the economy. The result is several major chains endeavoring to make gains by shrinking the number of stores.  Gap saw its same-store sales decline by 4 percent and consequentially has elected to shut down 200 of their nearly 900 U.S. locations. Yesterday, Lowe’s announced it would also cut back on its brick and mortar stores in order to spur profitability.   High competition and weak performance had been eating away at profits and closings in 2008 and 2009 had helped the home improvement store once before. The rise in online shopping and discounts alongside the decline in expendable income for many members of the middle class suffering from slower wage growth has had a negative impact on middle-of-the-road retailers. Stores that are recognizing this and helping to minimize damages while they are right-sized to the present sales and growth trajectories could be the ones predicted to recover most quickly.

Ann Taylor (ANN)-. Sales at its retail locations were sagging heavily in 2008, when the company made the decision to shut down a massive, 163 stores in the next several years. The tremendous cost cutting, alongside the success of its spin off brand, Ann Taylor LOFT, has helped the company return to strength.  UBS recently declared the company among the best buys in retail. It had a P/E ratio of 17.15 and is up over 4 percent for the month. Ann Taylor was a bit of a trail blazer in the shrinking to grow market, recognizing that under performing locations were keeping them from the strong bottom line they needed to be an attractive buy.

Gap (GPS)- Gap is taking a page from Ann Taylor’s book. The retailer has lost favor with its customer base recently and the firing of its head designer Patrick Robinson did little to bolster sales. Promotions and other such measures were equally futile, leaving Gap to cut costs in another way, by minimizing the number of stores. Gap will be eliminating  nearly a quarter of all its locations in response to the losses and if it follows the same trajectory as Lowe's and Ann Taylor, the move could actually be great for business. YTD, shares of Gap, which also owns Old Navy and Banana Republic, has fallen around 20 percent. The news that they would begin cutting back on locations as a saving measure has been well received by the public.

The company's online platform is growing and Gap seems to recognize that the Gap brand seems classic but a little humdrum stateside it has great recognition overseas.  As a result the company intends to expand its other brands more overseas, bringing an Old Navy to Japan within the next 18 months, and increasing the number of Gap stores in China from 15 ato about 45 by the close of next year. Additionally, Gap intends to continue to expand its online division to help bolster sales lost from the store closings. This could help Gap out of its recent slump and prompt share prices to recover in the same way  it has done for similar retailers.

Lowe's (LOW)-Yesterday, Lowe's announced that it would be closing an additional 20 stores following a huge and successful location reduction during 2008 and 2009. Same-store U.S. retail sales added 5.1 percent in September and Lowe's credits the growth to the elimination of under performing locations. The home improvement expert, in spite of the improvements, is looking to further streamline likely in the hopes that it will once again have the same impact.  Sales at longstanding U.S. retail stores rose 5.1% in September, according to a Thompson Reuters poll of 23 chains. Part of the improvement is owed to companies "right-sizing" by closing underperforming stores during the 2008 and 2009 economic recession.

 

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Companies

Symbol Name Price Change % Volume
GPS Gap Inc. (The) 22.62 0.04 0.18 3,662,750
LOW Lowe\'s Companies Inc. 72.35 0.27 0.37 6,052,994

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