We are on the edge of a precipice. Retail stores are closing at an unprecedented pace. This year 4,950 closings have already been announced and more may come. As sales are siphoned out of retail stores onto the Internet, stores are becoming less and less productive. Sales per square foot, the most telling productivity metric for retail stores, have been dropping. Despite falling sales, retail store expenses keep rising thereby crushing profits. These diverging lines, falling sales and rising expenses, have brought the retail industry to a tipping point where stores must close.
Retailers usually plan an increase in sales on a full year basis since they can count on increases in their operating costs. Merchandise costs, employee wages and benefits, business insurance premiums, utilities, and rent -- typically go only one way – up. When sales go down, negative operating leverage quickly unfolds and profits plunge.. . . more