How to Close a Store
Where the clothing, mannequins, and hangers go when the lights shut off.
BY ELIZA BROOKE MAY 18, 2017, 10:17AM EDT
“Free hangers,” said the sign in the window of American Apparel on Brooklyn’s Smith Street. The doors were locked and nobody was inside, though a few fluorescent light fixtures glowed on the bare walls. Someone had left an iced coffee to melt on the counter next to a roll of paper towels and a box of laser toner cartridges. There was a ladder and a stack of flattened cardboard boxes and some chairs scattered across the unswept floor, but not much else.
That afternoon, employees at the American Apparel on the borough’s Flatbush Avenue were preparing for its scheduled closing the following week. There was no pretense of merchandising the space to look like a fully functional store: Dozens of extra-small swim trunks dangled from one standing rack, but two sweatshirts had an entire wall to themselves.
So “everything must go.” But what is “everything,” and where does it go?
A cheerful young staffer cut open boxes on the floor. Unlike the long-term employees who’d been transferred from locations that had already closed, she started there only a month before, wanting short-term work.
The number of retailers trimming or shutting down their store fleets has mounted in recent months. Some went bankrupt, like American Apparel, BCBG, and Wet Seal. Meanwhile, sprawling chains like Macy’s, Sears, and JC Penney are trying to course-correct in a world where many people prefer to shop online. We just don’t need as many stores anymore.
So “everything must go.” But what is “everything,” and where does it go?
Big retailers often hire one or more liquidation companies to handle store shutdowns. Bradley Snyder, the executive managing director of Tiger Capital Group, says that his team decides how much and when the goods will be marked down, effectively taking over management of a store during its closing months.
Tiger Capital worked with Gordon Brothers on Sports Authority’s store closures after its bankruptcy. It’s currently winding down stores for Bebe and Payless with Great American Group, another liquidator.
“Because we liquidate so much, we know what things sell for, whether that’s 30 percent or 90 percent off. When we did Macy’s, we had a bunch of Apple Watches, which never go on sale. So if you discount them 5 percent, they’ll sell,” says Snyder.
Tiger Capital brings in its own supervisor to work with the store’s existing management on a day-to-day basis, and it hires seasonal retail workers in anticipation of holiday-like swarms of shoppers. As inventory depletes, the company might consolidate stores, moving leftover product to the locations with the best foot traffic.
The game is to have employees constantly reorganize the space to make it look as polished and inviting as possible, Snyder says, particularly when the retailer in question is staying in business. Closing underperforming stores can improve a brand’s health, but doing so puts it at risk of looking cheap and damaging its reputation.
“With Macy’s, priorities number one, two, and three are protecting the Macy’s brand,” says Snyder. “We want it to look and feel like a Macy’s store with a huge sale going on, versus a junk sale.”
Like this: Avoid the aggressive red, yellow, and black signs that herald a going-out-of-business sale. Make custom signs that look like they could live in the store at any time of the year. That’s what Kate Spade Saturday did when it went out of business in 2015, according to Andi Smith, who worked at the brand’s Soho store until it closed.
“One day, the real estate company came in and put in a big sign that said ‘For Lease.’ We were still in business, and it was a really ugly sign,” Smith says. “A day or two later, our graphic design team came in and put in a prettier ‘For Lease’ sign that was yellow with black sans serif font.”
Smith and her coworkers were tasked with making a list of all the furniture in the store and selling it off. Employees got first crack at the selection before opening it up to the public: $150 for a chair, $50 for a mannequin; cash only, because those items weren’t listed in the computer system as stock.
Some people bought Kate Spade Saturday’s furniture for their homes. Others shopped for their own stores.
“This sounds weird, but it was like watching a grandparent pass away. You know the end is inevitable, but it’s waiting for that to happen.” It wasn’t a happy time to be working the sales floor, Smith says. Managers tried to encourage the close-knit team to enjoy their last weeks together, but employees were frustrated about losing their jobs. The failure of Kate Spade Saturday, a little sister brand to Kate Spade that had launched just two years before, was jarring.
“It was still such a fresh, new brand. People put a lot of effort and time and heart into it. This sounds weird, but it was like watching a grandparent pass away. You know the end is inevitable, but it’s waiting for that to happen,” Smith says.
Shoppers left niceties at the door and tried to negotiate extra discounts, Smith says. (“No, we could sell it to someone for the price we’re asking.”) One American Apparel employee says that because not all stores marked down product at the same cadence, customers would come in asking to pay what they would at another location. (“Like, no! I don’t set the prices.”)
This American Apparel worker would, however, sell you a box of hangers for $5 or let you take clothing missing a tag for free. (Because store staff wasn’t allowed to speak with reporters, he asked to remain anonymous.)
One American Apparel employee says that because not all stores marked down product at the same cadence, customers would come in asking to pay what they would at another location. The day we spoke, he had been cleaning out the back room and throwing away notebooks, batteries, folders, and cameras. He took some of it home because tossing it in the trash seemed like a waste.
The plan was to donate all unsold clothing when the store closed, the American Apparel employee says. A rep for American Apparel didn’t respond to request for comment on whether this was a company-wide initiative.
Smith says the Kate Spade Saturday team was instructed to send leftover merchandise to a warehouse. Later, she heard that it had popped up in T.J. Maxx and Marshalls. A rep for TJX, the off-price chains’ parent company, declined to comment on whether it buys product from brands going out of business.
Snyder, on the other hand, claims that Tiger Capital Group never has leftover inventory at the end of a closing sale. “The final week, it’s that art of escalating discounts. There are people at the end who come in with shopping carts when it’s 90 percent off,” he says.
While the process of unloading furniture, printer paper, and even unmarked clothing is surprisingly informal, lease negotiations are just the opposite. Joel Isaacs of the commercial real estate firm Isaacs & Company represents brands like Prada and Marc Jacobs, negotiating their deals with landlords. Exit strategies are written into their leases, Isaacs says, many of which are 10 years long.
A landlord might grant a retailer the option to sublease the space, pending their approval. Or a tenant may ask to add a kick-out clause to the contract, which would let them end their lease early if sales aren’t hitting a certain threshold, typically with a penalty payment.
If a brand wants to get out of its lease but has an otherwise healthy business, it might offer up a package like three months’ rent, plus a brokerage commission, plus the cost of refurbishing the space for the new tenant, says Harold Bordwin, the managing director of Keen-Summit Capital Partners, who negotiates between landlords and retailers.
If a brand wants to get out of its lease but has an otherwise healthy business, it might offer up three months’ rent, plus a brokerage commission, plus the cost of refurbishing the space for the new tenant.
“The landlord will say, ‘Are you kidding? This is going to take me three years to rent. I need three years’ rent, plus brokerage, plus tenant improvement.’ They go back and forth,” says Bordwin.
In the case of bankruptcy, a retailer can reject its leases, leaving its landlords with little payout. So when a brand is doing very poorly, the threat of bankruptcy can serve as leverage for convincing a landlord to let it exit the space. (“The last thing landlords like to do is give up tenants and rent,” Bordwin says.) The company has to run the numbers and prove to its landlord that it would get more money now than in bankruptcy proceedings.
That’s the way things are going at the moment.
“We’re seeing more vacancies than I’ve seen in my career, so spaces are taking longer to lease,” says Isaacs.
The American Apparel employee says the store he worked in — now closed — had a sad, nostalgic air about it in its final days. It brought him back to the early days of the hipster aesthetic that American Apparel championed, which he thinks is pretty much over now. He doesn’t have a job lined up, but he doesn’t plan to get back into the clothing business.
“Retail has left a bitter taste in my mouth,” he says. “I think I’ll try to become a bartender near where I live.”