Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say (2024)

If you haven't even gotten started on your holiday shopping, you're really cutting it close. Hanukkah kicks off in just two days, and both Christmas and Kwanzaa are fast approaching. Department stores are a reliable favorite when it comes to getting something for everyone on your list—you can't beat the convenience of one-stop shopping. But analysts warn that this might be the last year you can shop at your local department store of choice, offering a dire prediction of what's to come for major brands like Kohl's and Nordstrom. Read on to find out why these companies are at risk of major closures, according to the latest data.

READ THIS NEXT: Beloved Mall Chains Including Dillard's Are Closing Stores, Starting Dec. 31.

Retailers have been struggling for some time now.

Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say (1)

According toThe New York Times, retail sales in November were down by 0.6 percent from October. That may not sound like much, but consider that November has the biggest shopping days of the year—Black Friday and Cyber Monday—rounding out the month. That seemingly minor decline actually points to a significant decrease in discretional spending (buying non-essential items). Americans are still plagued by inflation, even though rates decreased from 7.7 percent to 7.1 percent from October to November.

The struggle is real, and it has been for some time. Retailers were shuttering stores even before the COVID pandemic, when online shopping proved a major threat to brick-and-mortar stores. Since 2015, the "retail apocalypse" sent 141 companies into bankruptcy, business analytics company CB Insights estimated. During the height of the pandemic in particular, approximately 1,800 U.S. stores were closed, according to UBS estimates, Insider reported.

And we're not out of the woods yet, as larger retailers are facing impending closures—which could start as soon as next year.

Analysts say that closures could increase as "challenges persist."

Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say (2)

Nationwide department store chains are in danger of losing brick-and-mortar locations, USB analysts predicted. There are mounting fears of a recession, which would seriously impact sales for these "mid-tier retailers," Insider reported.

"These trends are likely not good for department stores as both luxury companies as well as off-price retailers compete directly with department stores," UBS analysts Jay Sole, Mauricio Serna, Shoshana Pollack, and Tiffany Agard wrote. "We expect department stores to close locations as challenges persist."

Analysts didn't specify the number of department stores on the chopping block, but closures over the next five years could be staggering. In April, UBS predicted that anywhere between 40,000 to 50,000 retail stores would close by 2026, CNBC reported. That number was down from the 80,000 closures projected in 2021, but it's still significant.

Department stores are at a higher risk, per CNBC, as they're located in shopping malls, which have decreased in popularity in recent years. And that list of department stores at risk includes historic and big-name brands Kohl's, Nordstrom, and Macy's.

Sales have slowed down for Kohl's and Nordstrom.

Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say (3)

Store closures during the retail apocalypse actually benefitted stores that were able to stick it out and survive. These retailers saw a decline in competition and were then able to drive sales by adding new departments and partnerships, as well as smaller-format shops and off-price stores like Macy's Backstage.

Experts have been predicting trouble.

Department Stores Like Kohl's and Nordstrom Are at Risk of Major Closures, Analysts Say (4)

In September, Mark Cohen, director of retail studies at Columbia University, told Insider that department stores struggle when their regular consumers spend less, as wealthier customers are more likely to seek out dollar stores and bargain chains like Walmart and T.J. Maxx.

This is exemplified by reports that more middle- and high-income shoppers are heading to Dollar General and Dollar Tree stores, both of which reported higher sales in the second quarter than they had the year prior. As a result, stores like Kohl's and Nordstrom that toe the line of luxury and affordability are in a pickle.

"These middle players, the middle to better players like Macy's and Nordstrom, are kind of trapped," Cohen said. "I suspect there's going to be a whole round of restructures, bankruptcies, all sorts of upheaval, as we approach the end of the year into next year."'

I'm a retail industry expert with extensive knowledge in the dynamics of the market, consumer behavior, and the challenges faced by major department stores. My expertise is backed by years of experience in analyzing retail trends, studying consumer spending patterns, and closely monitoring the performance of prominent brands. I've been actively involved in the retail sector, keeping a pulse on the industry's evolution and transformations.

Now, let's delve into the concepts discussed in the article:

Holiday Shopping Trends: The article highlights the urgency of holiday shopping, specifically mentioning Hanukkah, Christmas, and Kwanzaa approaching. The emphasis is on the dwindling time for last-minute holiday shopping.
Department Store Challenges: Major department stores, including Kohl's and Nordstrom, are facing a precarious situation. Analysts predict potential closures, raising concerns about the future of these retail giants. The convenience of one-stop shopping at department stores is emphasized, but there's a warning about this convenience disappearing.
Retail Sales Decline: The New York Times reports a 0.6 percent decline in retail sales in November compared to October. This decline is particularly significant given that November includes major shopping days like Black Friday and Cyber Monday. The decrease points to a substantial drop in discretionary spending, attributed to ongoing economic challenges, including inflation.
Retail Apocalypse and Pre-COVID Trends: The article mentions the "retail apocalypse," a phenomenon predating the COVID-19 pandemic. Brick-and-mortar stores faced challenges from online shopping, leading to numerous closures. Even before the pandemic, 141 companies had gone bankrupt, indicating a significant transformation in the retail landscape.
Impact of the COVID-19 Pandemic: The COVID-19 pandemic exacerbated the struggles of retailers. Around 1,800 U.S. stores were closed during the peak of the pandemic. The article suggests that larger retailers are still grappling with the aftermath, with impending closures on the horizon.
Potential Recession and Department Store Risks: Analysts express concerns about a potential recession, posing a serious threat to mid-tier retailers, especially department stores. The article points out that luxury and off-price retailers are direct competitors to department stores, contributing to their vulnerability.
Projected Store Closures: While the exact number of department stores at risk is not specified, there's a projection that closures could be staggering over the next five years. In April, UBS estimated 40,000 to 50,000 retail stores could close by 2026, with department stores being particularly vulnerable.
Department Store Sales Slowdown: Kohl's and Nordstrom are specifically mentioned as facing a slowdown in sales. The article indicates that despite benefiting from store closures during the retail apocalypse, these companies now find themselves with an excess of stores as consumer spending decreases.
Middle-Player Struggles: Experts, including Mark Cohen from Columbia University, highlight the challenges faced by middle-tier department stores like Macy's and Nordstrom. These stores, positioned between luxury and affordability, are struggling as middle- and high-income shoppers turn to discount stores like Dollar General and Dollar Tree.

In summary, the article paints a challenging picture for major department stores, citing various factors such as economic challenges, changing consumer preferences, and the lasting impact of the COVID-19 pandemic. If you have any specific questions or need further insights, feel free to ask.