• Smaller retail chains will be hit the hardest, UBS analysts said
  • Up to 70,000 stores may shut down if retail sales growth does not reach the yearly average
  • More than 1,400 retail stores under major retailers are shutting down this year

A combination of rising operational costs and the rallying of e-commerce sales are expected to deal a huge blow to the U.S. retail market, resulting in the likely closure of more than 50,000 retail stores across the country within the next five years, a new study by investment bank and financial services company UBS has reportedly suggested.

UBS equity research analyst Michael Lasser and his team predicted in the study, which was released Tuesday, that more than 50,000 retail stores will likely shut down in the U.S. due to rising operational costs and the ramping up of e-commerce sales in businesses, Insider reported. The team further predicted that the steepest declines will be felt the most by specialty retailers, specifically those in consumer electronics and clothing stores.

Some 4,000 home furnishing stores out of 47,769 shops in the U.S. are expected to shut down within the next five years. Apparel and accessories stores are poised to see a bigger decline as UBS expects a minimum of 14,000 shops under the said subsector to close by 2027.

UBS said the number of expected retail store closures represents a reduction of 5% in the overall U.S. retail store count of about 940,000 shops. Smaller retail chains are expected to be affected by the physical store decline while big retailers such as Target, Costco and Walmart are predicted to see big wins over the said period.

Unlike smaller retailers, retail giants have more business backbone to absorb the impact of rising costs and have more means to invest in strategies that will cater to the shifting demand in digital sales.

Regional retail chains, especially those located within shopping malls, are expected to "continue closing stores and potentially go out of business," UBS analysts said, as per Sourcing Journal.

Finally, UBS analysts warned that if retail sales growth falls short of the 4% per year average, store closures in the sector could reach beyond 70,000 as e-commerce sales are expected to see a 26% hike in total sales by 2028.

Last month, retail executives had less-than-stellar projections about consumer spending even as retail companies reported better-than-expected quarterly earnings.

Some retail executives said they expected "headwinds" in the market and "softness" in consumer spending, The Buffalo News reported. Furthermore, they told investors and analysts that earnings for the first quarter of 2023 and possibly throughout the year would be smaller than in previous years.

Many of the retail executives who had downbeat outlooks of the retail market for this year cited shifting patterns among low-income shoppers who continue to suffer from inflation and the economic downturn.

"The lower-household-income customers are pinched," Bruce K. Thorn, CEO of furniture retailer Big Lots, said, according to the outlet.

In February, U.S. retail sales fell moderately at 0.4%, as reported by the Commerce Department. In the previous month, retail sales climbed 3.2%, with economists pointing out that challenges with adjusting data for shifting spending patterns at the end and the start of the year affected the "exaggerated" surge in January retail sales growth.

During February's sales decline, motor vehicle purchases led the pack in the contraction as auto dealers' receipts were down by 1.8%. Furniture stores and clothing retailers also saw a decline, while online sales increased by 1.6%.

More than a dozen major retailers have announced store closures in the U.S. this year, Insider earlier reported. The collective number of store closures announced so far in 2023 from the likes of Amazon, Foot Locker and Walmart is 1,416.

While some of the companies that have so far announced store closures this year pointed to cost-cutting measures as a reason for the shutdowns, others said they were adjusting selling methods to meet ever-changing purchasing trends.

Foot Locker leads the list of retailers that announced store closures this year, saying it will close 545 stores by 2026. Bed Bath & Beyond will close 416 locations this year, Tuesday Morning will shutter 265 stores amid bankruptcy proceedings, Bath & Body Works will close about 50 mall-based stores and Gap and Banana will shut down 46 stores. Other retailers on the list announced the closure of less than 30 physical stores.

In April last year, UBS said traditional shopping malls were at higher risk of seeing retail store closures than strip centers due largely to a decrease in shopper mall traffic as consumers shifted to shopping in stores closer to their own homes.

Shoppers wait in line outside a Bath and Body Works retail store in Brooklyn, New York
In photo: shoppers wait in line outside a Bath & Body Works retail store in Brooklyn, New York. Reuters