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Millennial-focused stores give hope to retailers

Hadley Malcolm
USA TODAY

When Sears' CEO took the unusual step last week of pouring out his heart about the problems that the his storied chain faces in competing against a raft of upstarts, he could have been speaking for all old-line retailers.

Edward Lampert shared a list of troubles that Sears faces against upstarts like Amazon, which are shaking up the way goods are sold. Store chains from Walmart to Whole Foods "have felt the impact of disruptive changes from online competition and new business models," he told investors in a note.

Swedish brand H&M is one of the retailers experiencing rapid growth in the U.S. as traditional retailers scale back their businesses to adjust to changing shopping habits.

Walmart and Sears, along with others like J.C. Penney and The Gap are among the chains that have announced widespread store closings. But the news isn't all grim. Smaller, speciality chains like H&M, Zara and Primark, are on the rise. They specialize in rapid turnover of stylish yet inexpensive goods, powered by constantly updated merchandise that keep their mostly younger customers engaged when they can always opt to go online for just about any purchase.

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Retailers are fighting for every dollar. As Lampert pointed out in explaining his company's poor fourth-quarter performance, shifts in buying behavior and e-commerce have become so dramatic that no retailer or company is immune. Shutting stores has become a necessary step.

"As consumers shift more and more to online purchasing, retailers are stepping back and looking at right-sizing their portfolios," says Michael Brown, head of the retail practice at consulting firm A.T. Kearney. "How many stores are required by a certain type of retailer is still yet to be understood over the next three to five years."

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This year already alone, Walmart announced it would close 154 U.S. stores. Macy's will close 36 stores. Sears said it would speed up the closure of 50 stores. Those closures are just the latest in a spate of storefronts that have shut their doors in recent years. J.C. Penney closed 39 stores last year, Macy's closed 14, Gap closed 140 and teen apparel brand Aeropostale closed 126.

"Anybody with a store count of over 800 stores in a mall is reducing store count," says Ken Nisch, chairman of retail marketing consulting firm JGA. One of the reasons is many of the stores are no longer profitable or attracting enough traffic.

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But don't count these traditional chains out.

Even as they shed stores, chains like Macy's and Walmart are also opening new ones. In some cases, they are following the same path as the up-and-coming value-based brands. Macy's, for instance, is venturing into the popular off-price space with a brand of stores called Macy's Backstage. It opened six last year and plans to open one more this year. Kohl's is doing the same, announcing Friday that it would close 18 underperforming stores this year but pilot seven smaller-format stores and expand its new discount stores too.

Even aside from the influence of online shopping, many of the changes reflect demographic shifts and stores stuck in locations that are now less desirable, says Tom McGee, CEO of the International Council of Shopping Centers. This is the time of year when store closures are typically at their peak, following the holiday rush.

Don't expect those glaring empty spaces in malls to stay empty for long. .

Some specialty chains are hungry for store space. Sweden's fast-fashion brand H&M plans to open 21 new stores in the U.S. this year after opening 57 last year. Primark, a United Kingdom fast-fashion brand that made its U.S. debut in September, plans to have nine stores open by the end of this year. Growth of the Zara brand, owned by Spanish company Inditex, has been relatively slower given it first entered the U.S. market in 1989, but it still opened nine stores between February and October last year to bring its count to 62.

These brands have tapped into a desire among Millennial shoppers to invest in things that require less commitment — the clothes are stylish and fashion-forward yet inexpensive, ideal for rotating in and out of your closet just as quickly as trends change.

Ultimately, too, the lure of online shopping has its limits. There's no getting around it: Shopping is still an American pastime. That fact combined with the quick rotation of products at places like H&M is getting shoppers off the Internet and into stores to see, and try on, the latest styles — for now, at least. Eventually, the hot new brands may find themselves downsizing just like their old-school counterparts.

And, frankly, some chains may have to face the fact their best days are behind them.

"The only true axiom in life is the bell curve," says Robin Lewis, founder and publisher of a retail strategy publication called The Robin Report and co-author of The New Rules of Retail: Competing in the World's Toughest Marketplace. "You grow, you mature and then you die."

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