More Retail on the Market as Bankruptcies and Closings Pile Up In 2024

An eerie stillness has fallen across some prominent retail storefronts this year as closings pile up and spaces are left vacant.

As of early November, store closures around the country reached a total of 6,481 so far this year — the highest number of closings since the height of the pandemic in 2020, according to data from Coresight Research, as reported by CoStar. And that’s also a step up compared to the 5,553 total closings for the entire year of 2023.

It’s a stark change from the retail market’s recent label as the “darling” of commercial real estate after the growth in retail property sales and a low national vacancy rate of 2.5 percent during the third quarter of 2023. But the vacancy rate climbed to 4.1 percent through the first half of 2024, a report from Colliers found.

So why the sudden spike in closings? Neill Kelly, senior vice president at CBRE (CBRE), said there’s a multitude of reasons, but it’s largely due to high debt and a change in consumer behavior following the COVID-19 pandemic.

“Retail can be a volatile business,” Kelly told Commercial Observer. “There are peaks and valleys, and as the economy goes and consumer tastes change and the market shifts, high levels of debt do not mix.”

Many of the companies that shuttered stores this year — including some of the country’s largest home goods and fitness chains — experienced “too much debt” and were “over-leveraged,” Kelly said, leaving them with no other option but to file for Chapter 11.

Flooring retailer LL Flooring officially shut down its business in September after filing for bankruptcy in August and reporting nearly $110 million in long-term debt. Furniture and home goods seller Big Lots entered into an agreement in September to sell its operations after reporting liabilities of up to $10 billion. Baby wares seller BuyBuy Baby also announced it was closing all physical stores in October.

Most recently, Vitamin Shoppe owner Franchise Group filed for Chapter 11 in November after reporting nearly $2 billion in debt. The company — which owns several brands, including Buddy’s Home Furnishing and Pet Supplies Plus — said it will shut down all of its American Freight stores, which began going-out-of-business sales in November.

As of mid-November, 30 major national retailers announced bankruptcy filings in the U.S., compared to 26 during the same period last year, according to data from S&P Global Market Intelligence.

Those retail closings in particular were largely due to the continued rise of e-commerce following the pandemic, according to Kate Newlin, a retail brand consultant and president of Kate Newlin Consulting. Many people don’t feel the need to leave their homes to buy products anymore and are turning to the ease and convenience of tech giants like Amazon, which can deliver basic essentials like paper towels or toothpaste with the click of a button.

“The question becomes: What do we want to leave for?” Newlin said. “Do I need to go to Walgreens to buy my facial wipes or do I just go on Amazon? Ultimately, the market migrates to  convenience now.”

During the first quarter of 2024, e-commerce sales growth accounted for 57 percent of total U.S. retail sales growth, according to a report from FTI Consulting.

And as of October, 41 percent of shoppers said they increased their use of e-commerce sites and marketplaces compared to last year, as opposed to the 9 percent who said they reduced their activity in those channels, Retail Dive reported.

While some retailers have been able to keep up with the surge in e-commerce and integrate it into their brick-and-mortar strategy, others have fallen short.

“Some companies can change and some can’t,” Kelly said. “They’re not built that way or don’t have the capital to reinvest in their business, so it really eats into their revenues.”

One category of retailer that has surprisingly staved off the change in consumer behavior following the pandemic: locally owned shops like hair salons, liquor stores and diners.

“You always need restaurants and bars and shops with service-oriented businesses,” said James Famularo, president of retail leasing at Meridian Capital Group. “They’ll always have a strong demand for space.”

In fact, a report from Capital One updated in November found that 91 percent of American consumers shop at small and local stores during a typical week. Last year, Capital One estimated consumers spent $4.51 trillion at local stores, accounting for 54.3 percent of all retail sales.

And, while nationally the retail vacancy rate was on the rise, the success of those local shops has caused New York City’s retail vacancy rates to hit record lows, with just a 14.7 percent availability rate and only 202 vacant storefronts in the city’s prime submarkets during the third quarter of 2024.

Plus, local retailers retain 289 percent more revenue for the local economy than chain stores, the Capital One report found. Meanwhile, many chains, including drugstores Walgreens, CVS and Rite Aid, are struggling.

In October, Walgreens announced it would be shrinking its U.S. footprint by approximately 1,200 stores over the next three years to “control operating costs” and “improve cash flow,” according to the company’s earnings report. Walgreens’ announcement came after the drugstore chain reported operating losses of $14.1 billion so far in 2024 — a 104.5 percent increase from the same period last year — and a net loss of $8.6 billion, up 180.4 percent from last year, the report found.

“Our retail pharmacy business is central to our go-forward business strategy,” a spokesperson for Walgreens said in a statement to CO. “However, increased regulatory and reimbursement pressures are weighing on our ability to cover the costs associated with rent, staffing and supply needs. It is never an easy decision to close a store.”

Meanwhile, Rite Aid emerged from Chapter 11 in September, but only after reporting billions in losses and shutting down more than 500 stores over the course of a year. The drugstore chain now has a new CEO, Matt Schroeder, and will continue to operate with a new restructuring plan.

“If you’re not at the cutting edge of your business and the best of the best, then you’re going to go into this long list of bankruptcies that we see,” Famularo said.

One of the biggest bankruptcies of the year, though, was Equinox-owned fitness chain Blink Fitness, which filed for Chapter 11 in August and was sold in a bidding war to U.K.-based gym operator PureGym for $121 million in November. Blink, which had reported more than $280 million in debt, will now hand over its gyms in New York and New Jersey to PureGym.

“Over the last several months, we have been focused on strengthening Blink’s financial foundation and positioning the business for long-term success,” Blink President and CEO Guy Harkless said in a statement at the time. “We look forward to emerging from this process as an even stronger business.”

Blink wasn’t the first gym to go bankrupt following the pandemic. 24 Hour Fitness, Gold’s Gym and Town Sports International all shuttered locations due to financial issues, while Equinox itself secured about $1.8 billion in capital to refinance its debt maturities in March, CO reported.

And then there were the food chains. In November, American dining chain TGI Fridays announced it was beginning a “restructuring process” in response to financial challenges caused by the pandemic.

Seafood chain Red Lobster was also forced to close dozens of locations last spring after reporting estimated liabilities of $1 billion to $10 billion — thanks in part to an unlimited shrimp promotion gone awry. It has since successfully emerged from bankruptcy with a new CEO at the helm.

Restaurant chains have likely seen a dip in foot traffic in recent years due to the “rebound effect” of the pandemic, CBRE’s Kelly said. He explained that consumers experienced a “jailbreak” after COVID restrictions were lifted and felt compelled to return to their favorite eateries — but, now, not so much.

“That sort of brief celebration and existence of pent-up demand that really juiced up everyone’s performance has gone away, and we’re left with whatever [the restaurants] had left in the tank,” Kelly said.

The sudden drop in consumer demand has forced retailers to deal with the realities of higher interest rates and adjust their business models as goods become more expensive, Kelly added.

As for the actual vacant space left behind from these closings, Ripco Real Estate Vice President Benjamin Weiner said there’s a bit of a bright spot amid the doom and gloom because there’s “significant demand” for leftover retail storefronts, which are often on “high-profile, dynamic corners across each submarket.”

The demand for retail space has even increased by 54 million square feet over the past year, with much of that activity driven by “quick-service restaurants and personal services” like Starbucks, Taco Bell and Planet Fitness, the Colliers report found.

In fact, Weiner said Ripco has already had success leasing spots vacated by failed retailers — like Toys R Us and Bed Bath & Beyond locations — to food tenants, banks and fitness chains in the outer boroughs of New York City.

“If it’s a busy corner, near a subway or a bus stop, I think you’re going to be looking at the tenants in the market that really need to play off of traffic and high visibility,” Weiner said.

Nevertheless, the lasting effects of the pandemic will likely continue to cause unpredictability in the retail market, and, for the time being, it seems like it’s survival of the fittest for retailers in the U.S.

“There aren’t too many retailers that have been around for multi-generations,” Kelly said. “They come, they go, they evolve, but there’ll be new retailers that’ll grow and start to take their place.

“But I think we’re in a different environment now where the weak are going to get mowed down and the strong are going to find a way to muddle through,” Kelly added.

Isabelle Durso can be reached at idurso@commercialobserver.com.