By Mark Seavy

Will the recent wave of retailer bankruptcies signal a further retrenchment of brick-and-mortar locations?

The licensing industry faced a similar quandary just a few years ago when dozens of chains filed for bankruptcy or liquidated during the pandemic in a culling of retailers that were already struggling financially.

This time around—amid inflation, tighter credit terms, and high interest rates—the bankruptcies have affected everything from deep discounters like 99 Cent Holdings to specialty chains that got their start online and struggled with the brick-and-mortar format.

For the 540-store casual apparel retailer rue21, its most recent announcement followed similar filings in 2002 and 2017. Fashion retailer Matches, which carried more than 600 apparel labels, filed in response to the recent downturn in the luxury goods business.

In the case of Foxtrot, a 33-location upscale corner store/café that was a launchpad for many direct-to-consumer (DTC) brands, the issue was a combination of overexpansion and costs tied to a short-lived merger with Dom’s Market. After receiving $42 million in funding in 2021, Foxtrot announced plans to have 50 stores open by 2023 but ultimately shuttered last month.

“I don’t know if it was a lack of funding or just a bad business model,” said Rob Handfield, a professor of supply chain management at North Carolina State University. “In many cases, [these retailers] started out well and everyone was excited about what they were doing. They had a great marketing idea, but the execution was not there. Getting into brick-and-mortar retail is a big investment and a lot them did not understand the complexity of what they were getting into.”

Retailers around the world have found themselves in a market where younger consumers view stores as showrooms to display products rather than a place to make purchases (something they prefer to do online). And as operating costs outstripped revenue, these retailers became stuck between tightening consumer spending and eCommerce retailers like Shein and Temu, which offer lower prices that are heavily promoted through social media as well as pop-up stores providing an experiential twist that appeals to Gen Z and Gen Alpha consumers.

“The market dynamics are shifting and, in the high-end category, the business is stagnant. The younger generations of shoppers really get into pop-ups and experiences,” said Christopher Tang, a distinguished professor and Edward W. Carter Chair in Business Administration at UCLA. “Younger consumers do not want the traditional store and it is a new world that traditional retailers cannot pivot into easily.”

But even DTC brands that launched their brick-and-mortar efforts in the current retail landscape have needed to revamp their strategies. Footwear brand Allbirds is closing 10 to 15 stores this year and has forecast a 25% drop in revenue for 2024. Apparel supplier Untuckit, in contrast, plans to open 14 new stores this year, adding to the 80 already in operation.

“It is going to be a mixed bag this year and those retailers that can get a handle on their operating expenses to help offset any decline in revenue will thrive,” a licensing executive said. “Those that don’t will only add to the list of bankruptcies.”