Department Stores Face Tough 2023 As Economy Slows And Inflation Persists: UBS

U.S. department stores have made it through 2022 without many closures, but that will probably only be a temporary respite for that long-suffering piece of the retail sector.

UBS analysts forecast a wave of department store closures in 2023, citing inflation and the possibility of a recession as the prime headwinds for the stores, Business Insider reports. 

"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 wrote. "We expect department stores to close locations as challenges persist."

Another reason that department stores might close is that they tend to be located in shopping malls, which have lost their luster among shoppers in recent years, CNBC reports.

No department store brand is exempt from the risk of closure next year, including Kohl's, Nordstrom and Macy's, though UBS didn't predict how many of each might close.

Sales are already sluggish at department stores, despite the holiday season.

In November, sales at department stores dropped 2.9% from October, and 3.1% compared with November 2021, according to the Census Bureau. Overall U.S. retail sales were down for the month in November by 0.6%, but strongly up compared with last year, by 6.5%.

The outlook for department stores is glum despite the uptick in visits to physical stores seen on so-called Super Saturday, which was Dec. 17 this year. 

Visits to stores on that day were up 17% from Saturday, Dec. 10, and up 36% from Dec. 3, according to shopper traffic data from Sensormatic Solutions, Chain Store Age reports. Shopper traffic on Super Saturday 2022 also gained 0.2% compared to the comparable day in 2021.

Overall, the retail sector in the U.S. is showing signs of life. CBRE found in a Q3 report that retail real estate availability was the lowest since the company began tracking that metric in 2005. 

And Barnes & Noble said that it will increase its store count next year, after years of struggles for the retailer in the aftermath of Amazon's rise as a bookseller in the early 2000s.