The real reasons why shops close in big cities
New York (CNN) Nordstrom. Walmart. Whole Foods. Starbucks. CVS.
These major chains and others have recently closed stores in major American cities, raising alarm about the future of retail in some of the nation’s most prominent downtowns and business districts.
Several forces are pushing chains out of some downtowns: an abundance of stores, people working from home, online shopping, exorbitant rents, crime and public safety, and problems hiring workers.
Reinventing downtown retail may require drastic changes.
That means tighter neighborhoods with a broader mix of affordable housing, experiential retail, restaurants, entertainment, parks and other amenities, which don’t happen overnight.
“Once [these cities] become true urban neighborhoods, then you’ll find that retail starts to come back in different ways and forms,” said Terry Shook, a founding partner of consulting firm Shook Kelly.
How policymakers reshape their downtowns — with retail as a crucial attraction — will be critical to cities’ fiscal health and regional economies.
A multitude of shops
Some of those policymakers, including both Republican and Democratic leaders, have pointed to crime as a primary reason for the closures, following videos of brazen shoplifting.
“We’re losing chain stores that are closing. People who are employed in those stores are losing their jobs” because of crime, New York City Mayor Eric Adams, a Democrat, said in February.
But the impact of shoplifting may have been overstated in some cases.
Walgreens said it saw an increase in losses, known as shrinkage, during the pandemic and cited organized retail crime in its decision to close five San Francisco stores in 2021. But that recently reversed.
“Maybe we cried too much last year” about shrinking numbers, a Walgreens executive said in January.
And rather than a strong correlation with crime rates, the closings are also not a recent phenomenon.
San Francisco, Los Angeles, San Diego, New York City, Seattle, Miami and Chicago lost stores from the beginning of 2017 to the end of 2021, according to research from the JPMorgan Chase Institute, a think tank.
Moreover, the experts agree that the closures are not just about crime. Several trends have converged to put these stores at risk.
Perhaps the most important is the abundance of stores in America.
According to Morgan Stanley, from 1995 to 2021, more stores closed each year than opened. The trend became popular as the “retail apocalypse.”
So while metropolitan closures may garner national attention, in reality they are often part of closures that a brand implements across the country.
“The logic of big-box retail, period, is much weaker than it was 20 years ago or even 10 years ago,” said David Dixon, an urban place fellow at Stantec, a global design firm.
For example, Walmart has closed about 40 stores since 2021 and will close 20 this year. Nordstrom will close 15 locations in 2023.
CVS also announced in 2021 that it will close 900 stores over three years.
Even in shops that are still in the city centre, there are often fewer shoppers.
An important factor here is the pandemic shift to remote working: Between 2019 and 2021, the number of people who primarily work from home tripled from about 9 million people to 27.6 million people, according to the Census Bureau.
The rise of remote work has damaged urban downtown shopping areas, which were designed to accommodate office workers who commute back and forth daily.
The typical office worker now spends about $2,000 to $4,600 less per year in urban centers, according to research by Nicholas Bloom, a Stanford University economist.
They are shifting that spending to the suburbs, as 1 million people also left urban centers during the pandemic, he said.
Retailers have followed this shift.
They left more expensive cities like San Francisco and New York for cheaper Sun Belt cities like Phoenix and Houston, the JPMorgan Chase Institute found.
San Francisco lost about 6% of its retail businesses from 2019 to 2021, according to the think tank’s research. Los Angeles lost about 4% and New York lost 3%.
Meanwhile, Houston and Phoenix gained 4% new retail businesses during that stretch.
The stores are also under pressure from the continued transition to online shopping.
E-commerce accounted for 14.7% of all retail sales in the last quarter of 2022, according to the Census Bureau. The pandemic accelerated this growth.
For example, chain store closings in New York City have correlated with the products most often purchased online. Clothing, shoes, accessories, vitamins and electronics stores have fared the worst, said Jonathan Bowles, executive director of the Center for an Urban Future, a public policy think tank.
And while crime isn’t the biggest factor in many cases, higher levels of shoplifting and other losses have taken a toll.
Retail shrinkage reached $94.5 billion in 2021, a 53% jump from 2019, according to the National Retail Federation’s annual survey of about 60 retail member companies. (The biggest contributor to shrinkage is customer theft, but the calculation also includes employee theft, human error and other losses.)
Finally, the struggles to recruit workers for higher wages and punish rents in cities have contributed to retail closures.
In San Francisco, the average rent listed by landlords in the first quarter of 2023 was $43 per square foot, nearly double the national average, according to data from Cushman & Wakefield. In New York it was $32 per square foot and $33 in Los Angeles.
In cities where retailers are growing, such as Phoenix, Houston and Dallas, average rents were $22 and $23 per square foot.
“The center is for people”
There is no easy solution to slowing the exodus of retail chains from cities.
Replacing a Nordstrom with another department store, or replacing a CVS with another drugstore chain, is unlikely to be sustainable, experts say.
“It’s a very tough problem for cities and economic developers,” said Chris Wheat, the president of the JPMorgan Chase Institute. “How do you get these people to live, work and play? It was a question before the pandemic, but it has become more prominent now.”
It hearkens back to urbanist Jane Jacobs’s influential 1958 essay “Downtown is for People,” in which she argued that vibrant street life was essential to neighborhood safety and community.
It is this model, focused on the vitality of the streets and the people who live in them, that is needed to create vibrant and exciting communities and shopping areas.
Streets may be closed to cars at weekends and other hours. Cities can also host street fairs, food festivals, live music, art exhibits, and other events to draw foot traffic downtown.
These so-called “placemaking” investments – which Bowles notes are “not massive, billion-dollar” investments – can be supported by special business improvement districts, where local stakeholders finance the maintenance and promotion of the area.
Make streets come alive
If the future of shopping is not giant department stores, a wider mix of stores will be needed to make downtown more attractive.
Traditionally, retail landlords seek the longest leases. But that makes it difficult for new stores to open.
Cities can provide financial incentives to encourage landlords to offer temporary and more flexible leases and loosen regulations to speed up the permitting process for them.
This will allow for pop-up shops, seasonal retailers and a mix of food and drink vendors.
“Can Retail Be More Responsive?” said Paco Underhill, the founder of behavioral research and consulting firm Envirosell. “Can you have a place that is Crocs in the summer and Canada Goose in the winter?”
Then there are more intractable challenges, such as improving public transport and creating more affordable housing in city-centre areas.
The regulatory laws must be updated to allow the conversion of some vacant office buildings and commercial property into affordable housing.
The density of housing that will replace some office and commercial space matters, said David Dixon of Stantec. People want to shop just minutes from their homes, and a critical mass of housing is needed to sustain surrounding retailers.
“A vibrant downtown, full of housing, can bring the streets to life,” he said. “It’s a much bigger story than the fate of the dealers themselves.”