Big Retailers Scaling Back Expansion Plans and Shutting

Stores
After a decade of breakneck expansion, big retail chains are slamming on the brakes
hard.

Dana Mixer/Bloomberg News
A Home Depot employee cuts pipe for a customer. The chain will close 15 stores and cut the number of new stores it
will open.
Home Depot, the nations largest home improvement chain, said on Thursday that it
would abandon plans to open 50 new stores and would close 15 poorly performing
locations. As part of the belt-tightening, the company will permanently scale back plans
for expansion after 2008, when it will open new stores at the slowest rate in its 30-year
history.
Home Depot has been hit especially hard by the housing slowdown, but it is not alone in
rethinking its expansion plans. Over the last six months, chains like Starbucks, Pacific
Sunwear and Ann Taylor have vowed to close a combined 1,000 stores, which is expected
to remake hundreds of shopping centers around the country.
Bill Dreher, a retail analyst at Deutsche Bank Securities, said chains made overly
ambitious plans for new stores during a period when consumer spending was unusually
robust.
But its increasingly clear that those expectations were inflated, he said.
So like their customers, the stores are slashing their budgets during the economic
downturn. Foot Locker will close 140 stores over the next year, Ann Taylor will start to
shutter 117, and the jeweler Zales will close 100.
Charming Shoppes, which owns the womens clothing retailers Lane Bryant and Fashion
Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. Pacific
Sunwear is shutting a 153-store chain called Demo.
Even Starbucks is struggling and plans to close 100 stores.
The International Council of Shopping Centers, a trade group, predicts 5,770 store
closings in 2008, an increase of 25 percent from 2007.
Many retailers not shutting stores are scaling back plans for new ones. J. C.
Penney, Kohlsand Wal-Mart are slowing their expansion or delaying store openings.
Penneys said it would open 36 stores this year, not 50 as planned. Kohls, which had
aimed to open 100 stores a year, will build just 75 in 2008.
The store closings and delayed openings are expected to ripple through the economy,
depriving many communities of sales tax revenue and eliminating work for commercial
construction companies.
Home Depot said that its new plans amounted to a major shift in its business model, one
that emphasized improving sales within existing stores, rather than achieving growth by
rapidly opening new ones.
In 2007, Home Depots sales-floor space grew by 4.9 percent. In 2008, that figure will
fall to 2.5 percent. After that, it will drop to just 1.5 percent, regardless of the health of
the economy, the company said.
The moves will save Home Depot $1 billion in store construction over the next three
years, cost the chain more than $500 million in write-downs and could result in
hundreds of job losses. Wall Street analysts applauded the new strategy, which gave a lift
to Home Depots stock. It rose 4 percent, to $29.87, on Thursday.
David A. Schick, an analyst at Stifel Nicolaus, said investors were pleading with
companies like Home Depot, Wal-Mart and Starbucks to focus on the stores they already
have.
The 80s and 90s was growth, growth, growth, he said. But the stock market wants
these stores to slow down.
Home Depot said that even though the downturn in the housing market had hurt its
business, the new strategy was not a short-term response to the state of the economy. It
will still open the 55 stores it planned for 2008. But Home Depot will not build 50 stores
it has had in the works for up to 10 years.
Store closings will take place in cities ranging from Saddle Brook, N.J., to East Fort
Wayne, Ind. The closing stores make up less than 1 percent of its 2,200 locations.
Closing a store is always a difficult decision because it affects both our people and our
communities, said the chief executive of Home Depot, Frank Blake. But, as with our
decision to slow future store growth, this is the right decision.
Home Depots less ambitious plans for growth follow Wal-Marts decision last year to
begin slowing its expansion after years of blanketing the country with its cavernous
stores.
The new strategies are an admission that some parts of the country are saturated with
so-called big-box stores like Wal-Mart and Home Depot, the nations two biggest
retailers.
Its no secret that America is over-stored, said Mr. Dreher, the analyst.