Wall Street says 50,000 retail stores will close in 5 years

The past year has seen 2,000 retail store closures, with the likes of Bed Bath & Beyond, Foot Locker and Walmart shuttering locations as they look to save money. But that trickle is set to turn into a flood in the next five years, according to one Wall Street analysis that predicts 50,000 stores will close.

If the economy falls into a prolonged recession, closures could reach 90,000, analysts at UBS said in a research note published Tuesday. Smaller operations that employ 500 or fewer people are most likely to close, they wrote. 

The U.S. currently has roughly 940,000 stores and the UBS prediction "simply implies that there will be 5% fewer stores by the end of 2027," analysts said.

The forecast is particularly troubling because, according to the National Retail Federation, about 70% of retail sales still come from brick-and-mortar stores, meaning retailers could suffer greater losses once they close off the places where customers physically stroll and shop.

UBS pointed to three factors causing retail locations to close: the ever-growing prominence of online shopping; increased borrowing costs and customers tightening their wallets due to inflation. 

Stubbornly high inflation in recent months has pinched household budgets, causing consumers to pay elevated prices for everyday staples like gas, groceries, clothes and housing.

Clothing, electronics and home furnishing stores will likely bear the brunt of closings in the coming years because more of their shoppers will opt to purchase those items online, UBS said. They project closures of 13,840 clothing stores, 9,190 electronics locations and 4,090 furniture stores.

By comparison, UBS expects home improvement stores to lose only 210 locations and auto parts stores to stay steady. Both job growth and year-over-year sales have increased at home improvement and auto parts stores, UBS said — two reasons why that sector of retail likely won't suffer as many closings in the future.

Major retailers — including Costco, Home Depot, Lowe's and Target — stand to benefit the most from the predicted store closings, UBS said. The closings of smaller operators would mean roughly $210 billion in retail sales would be up for grabs, analysts said. 

"This translates to $1,600 annual spend per household that has the potential to shift to the leading retailers," UBS analysts said.

Some major retailers are already well into the closing spree. Companies shuttered about 1,500 stores last fall, UBS noted.

Bed Bath & Beyond said it plans to close nearly 240 stores this year as part of a larger effort to avoid bankruptcy. Walmart is closing more than a dozen low-performing locations in major cities like Atlanta, Chicago, Portland and Washington, D.C. Foot Locker said last month it plans to close 400 mall-based stores by 2026 and open more than 300 free-standing locations.