More Big Retail Brands Pull Plug on Underperforming Locations

Starbucks, Target Headline High-Profile Closings, as Concerns Rise Over Operational Challenges Starbucks is closing multiple locations across San Francisco in response to lower foot traffic and the company’s pivot to newer store formats. (Starbucks)
By Katie Burke

Some of the nation’s largest retailers are taking a harder line when it comes to deciding whether to preserve or permanently shut struggling outposts, a shift that has resulted in a number of high profile closings as some brands appear no longer willing to stick it out in challenging locations.

Starbucks is the latest to add its name to a lengthening list of companies weeding through their vast real estate portfolios with the coffee giant’s decision this week to close seven locations across downtown San Francisco. The area has had markedly less foot traffic since the pandemic struck and accelerated the practice of remote work.

“There are several factors Starbucks considers when tasked with the tough decision of closing a store, but it is all part of ensuring a healthy store portfolio,” Jessica Borton, Starbucks’ regional vice president for Northern California, wrote in a letter to affected employees. She added that the closings were part of a “very difficult decision,” but that Starbucks “remain(s) dedicated to investing in the city in meaningful and important ways.”

The Seattle-based company evaluates its real estate on an annual basis, a spokesperson told CoStar News, and its review “includes opening new locations, identifying stores in need of investment or renovation, exploring locations where an alternative format is needed and, in some instances, reevaluating our footprint.”

Target To Shut Nine Stores Nationally, Blaming Retail Theft and Violence Concerns While retail closings are hardly new, they’ve historically been driven by smaller businesses and brands that are more vulnerable to economic challenges and lack the capital, operating history or track records that make it possible to withstand them.

Big Holes To Fill
Even so, in recent years that appears to have shifted as major retailers such as Target, CVS, Walgreens, Starbucks, Amazon, Nordstrom and Whole Foods Market, among others have increasingly cut the cord on locations beset with such emerging challenges. Those concerns include elevated levels of theft, socioeconomic concerns such as homelessness, worker shortages, or in the case of San Francisco and other downtowns across the United States, foot traffic that is just a fraction of what it was prior to the pandemic’s 2020 outbreak.

Coffee shops and restaurants, in particular, have struggled to adapt to the absence of workers popping in on their way to the office or picking up lunch on the go. The widespread adoption of remote or hybrid schedules has meant the daytime population on weekdays in downtown San Francisco is far below what it used to be, and with office vacancy rates nearing 30%, unlikely to recover anytime soon.

Lines that used to snake out the door of Starbucks’ downtown cafes on a typical workday morning have all but disappeared, meaning the coffee chain no longer needs to maintain the cafe-on every-corner strategy for which it has been known. Dwindling foot traffic has put a spotlight on other issues such as shoplifting and concerns about other crime, two factors in Target’s recent decision to close nine stores before the end of the month, three of which are located in the San Francisco Bay Area. The Minneapolis-based retailer, which has a roughly 2,000-store footprint, pointed to theft and violence as reasons for shutting down the selected stores, adding that the decision prioritizes the safety of its employees and customers.

Several national chains, including Target and Dick’s Sporting Goods — have blamed theft for eating into their profits. Larger retailers, many of which are publicly traded, also have a fiduciary responsibility to their shareholders and to operate profitable locations.

Walmart has shut about 40 stores since 2021 and is on track to close 20 this year. Nordstrom will shut down 15 locations in 2023. CVS released plans in 2021 to close about 900 locations within three years.