As retailers herald tax savings, they're still closing stores and laying off workers
Several retailers have touted bonuses, employee raises and improved benefits as evidence that the new tax legislation is creating opportunities for the industry’s workers. But even as these proclamations are being made, retailers are still closing stores and laying off staff.
At its most basic level, the new tax law does put more cash in the pockets of most retailers, but the math requires more nuance to understand whether that money will flow to retail employees.
First, the new tax law actually means that corporations could pocket more savings by laying off workers in 2018 than they could in 2017. It also makes it cheaper to buy labor replacing machinery than in 2017. Investing in technology is particularly important as the biggest retailers hope to fend off Amazon.
Secondly, many retailers (particularly department and specialty stores) are still struggling. Even if the companies have plans to revive business by investing in e-commerce and a better store experience, that model is only profitable if accompanied by a right-sized store footprint. A brick- and-mortar presence is important to retail, but many companies simply have too many stores or the stores are too large. The only way to solve that problem is through closures.
Third, the new tax law actually puts more pressure on leveraged retailers (of which there are many). The ability for names like Saks-owner Hudson’s Bay and Neiman Marcus to use debt to offset tax bills will be constrained, complicating efforts to right the ship.
Below is a list of some of the biggest names in the industry that have announced store closures and layoffs already this year.
Retailers including Ascena Retail Group, Mattress Firm, The Children’s Place, Gap, J Crew and Bon-Ton are in the midst of longer-term store closure initiatives, whittling off square footage at a slightly slower pace. Real estate experts have also pointed out that oftentimes store closures happen quietly and don’t make headlines — especially those by tenants within a shopping mall.
FGRT (formally Fung Global Retail & Technology) has estimated that roughly 1,800 stores will close in 2018, based on retailers’ announcements to-date.