Last week, Gap announced it would close approximately one-third of its stores over the next couple of years in the US market (presumably as leases come up for renewal), and focus its expansion plans overseas. A few days later, Lowes announced the closing of twenty of its 1700+ stores in North America, even as it plans to open 150 in Australia over the coming five years. The market rewarded both companies, and their stock rose.

At the same time, Walmart announced plans to build a superstore on five acres of land in the middle of a burgeoning and kitchy art district in Miami; the same space it was denied in 2005. All indications are the retailer will have a serious fight on its hands, as neighbors just don’t believe it’s the right place for a Walmart superstore (for the record, neither do I – more on that later). The stock price appeared un-phased.

I had a long chat with an industry friend about the first two announcements: is it a trend? Will we see more of the same? Are the Gap and Lowes’ closings emblematic of the “new normal ” in a post “Great Recession ” world? He thinks yes. I think not. The root cause, in my mind, is the recognition among these chains that markets are not infinite and there comes a time and place when store growth is just counter-productive. The Asia/Pac markets however, are still [relatively] under-served by US-based chains. So at the same time the stock market is rewarding shuttering unprofitable stores in the US, it still encourages square footage growth – just in other areas.

The Details

It’s true that as the number of buying channels continue to proliferate, the need for terrestrial stores diminishes somewhat. But it’s also true that Gap long ago overgrew its target market. You could look as good on Casual Friday with an outfit from Target as you could with an outfit from Gap, and if your income wasn’t quite up to what Gap expected, you could do without the logo. My own sister is an avid Gap shopper for herself, her husband and both their kids. But my sister is also in the 1%, as opposed to the 99% (to use Occupy Wall Street terminology). She can afford it; her husband’s employees, not so much. The “right number of stores ” is finding the right number for your target market.

I had a whole set of logic around the Lowes closings, but when I did some more research and saw 1700+ existing stores in North America and 150 planned openings in Asia/Pac I realized I didn’t need much logic. Twenty bad apples out of a 1700 apple bunch is probably a pretty good batting average, especially when you’ve got plans to go somewhere else. In fact, I’m not quite sure why it was news at all, beyond the suddenness of the closings.

Then there’s Walmart. The company has been thrashing for years in attempts to boost comparable store sales. Go up-market, go back down-market. Get into fashion apparel, get out of apparel. Dramatically reduce the number of branded skus they sell in the name of “Project Impact ” then put them back when the customer cries foul. Larger footprint stores, smaller footprint stores. And still comps stay flat. Why do we think that is?

Walmart did something phenomenal in the US. For better or worse, it brought a vast variety of commodities to consumers in remote locations at reasonable prices. There was more than a little collateral damage to those small towns, but on measure, the consumer voted with her wallet. She liked the selection and price. She’s still voting today. I do believe that behind all the thrashing, and shifting and changing of management teams, the core problem is simple. Walmart has tapped out its addressable market. Upscale customers really don’t want to be addressed by Walmart. That’s just the way it is.

I said earlier that I believe the space Walmart has asked for in Miami is the wrong space. Before you assume that this is a NIMBY moment, let me promise you it’s not. A space I would prefer Walmart take is forty blocks closer to my house, in a neighborhood that could use the “boost ” a Walmart would bring, with a very dead and very large strip mall, located equally close to highways and public transportation. Does that mean Walmart should expand in Miami any further at all? I don’t know. I haven’t looked at the numbers. I’m willing to let the company take a gamble not so far from my house. In an arts district? Nope.

The Bottom Line

Do I see Gap’s and Lowes’ store closings as the start of a trend? I see the first as a long-overdue move, and the second as essentially insignificant. Do I think we will see fewer stores in the future as sales shift to other channels? Of course I do. You’d have to be blind not to recognize we have too many stores in the US, with many selling similar stuff.

Do I believe Walmart is missing the point? Yes I do. Just a few weeks ago I wrote a piece about how great it is for Home Depot to have opened on St Croix, so I’m certainly not opposed to big box retailing in concept. Heck, this is my industry. I want it to succeed. But there’s need, and then there’s “no need. ” In a heavily populated city, with a Target, Home Goods, Petsmart, Foot Locker, West Elm, Payless, Publix and many other stores a stone’s throw away, a Walmart Superstore is superfluous at best, and destructive at worst. On paper or computer monitor it may look logical, but one site visit should have told the tale. Wrong place. Wrong time.

Wall Street rewards comparable store sales growth. It also rewards square footage growth, but smart retailers will figure out ways to have both. And that may not happen in the same geography.