As retailers herald tax savings, they're still closing stores and laying off workers

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As retailers herald tax savings, they're still closing stores and laying off workers

A worker holds a sign announcing a store-closing sale outside the 60-year-old Sears store in Chicago.
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Several retailers have touted bonuses, employee raises and improved benefits as evidence that the new tax legislation is creating opportunities for the industry's workers. But even as these proclamations are being made, retailers are still closing stores and laying off staff.

At its most basic level, the new tax law does put more cash in the pockets of most retailers, but the math requires more nuance to understand whether that money will flow to retail employees.

First, the new tax law actually means that corporations could pocket more savings by laying off workers in 2018 than they could in 2017. It also makes it cheaper to buy labor-replacing machinery than in 2017. Investing in technology is particularly important as the biggest retailers hope to fend off Amazon.

Secondly, many retailers (particularly department and specialty stores) are still struggling. Even if the companies have plans to revive business by investing in e-commerce and a better store experience, that model is only profitable if accompanied by a right-sized store footprint. A brick-and-mortar presence is important to retail, but many companies simply have too many stores or the stores are too large. The only way to solve that problem is through closures.

Third, the new tax law actually puts more pressure on leveraged retailers (of which there are many). The ability of names such as Saks owner Hudson's Bay and Neiman Marcus to use debt to offset tax bills will be constrained, complicating efforts to right the ship.

Below is a list of some of the biggest names in the industry that have announced store closures and layoffs already this year.

Retailers including Ascena Retail Group, Mattress Firm, The Children's Place, Gap, J Crew and Bon-Ton are in the midst of longer-term store closure initiatives, whittling off square footage at a slightly slower pace. Real estate experts have also pointed out that often store closures happen quietly and don't make headlines — especially those by tenants within a shopping mall.

FGRT (formally Fung Global Retail & Technology) has estimated that roughly 1,800 stores will close in 2018, based on retailers' announcements to date.

  • Walmart

    Walmart took investors, employees and customers by surprise when it abruptly announced it would close 63 of Sam's Club wholesale stores. The news came the same day the big-box retailer said it would boost starting wages and give some employees bonuses, citing the new tax law for its decision.

    The Sam's Club closures are part of a longer-term strategic repositioning, Walmart said. The warehouse store had long underperformed relative to its rival Costco, and closing locations helps minimize exposure.

    Walmart has been shaking up its core business too. The retailer is laying off up to 500 employees in its headquarters this year and will do the same next year. The layoffs come as the retailer is getting ready to move into its new headquarters, which is planned to be more consolidated and thus more efficient than its current layout. Layoffs have hit its real estate division, as Walmart builds out fewer stores than it used to. They've also hit human resources, logistics, finance and marketing.

    In its stores, Walmart is laying off roughly 3,500 store co-managers throughout the U.S. while adding about 1,700 assistant store managers (a slightly lower-paid role). The moves come as Walmart is remodeling its stores to focus more on supporting its online business (buy online, pick up in store efforts, for example), particularly its growing online grocery business. The growing number of assistant store managers will help support the front end of the store, such as carrying groceries to customers who ordered online.

    "We've been looking at our structure for some time as we explore ways to operate more effectively. Those efforts continue. We understand these changes affect a number of our friends and colleagues, for whom we care deeply," the company said in a statement.

    Click here to see a map of the closing Sam's Club locations.

    Shoppers leave a Sam's Club store in Rolling Meadows, Illinois.
    Getty Images
  • Toys R Us

    Following a miserable holiday season, bankrupt Toys R Us plans to shutter at least 180 of its stores.

    The toy retailer filed for bankruptcy in September, weighed down by $4.9 billion in debt leftover from its leveraged buyout. Under bankruptcy protection, the retailer had thought it would be afforded the financial flexibility to drive its turnaround.

    Its challenges may be more core than investors had thought. Toys R Us has struggled to find a niche in the toys business that competitors Amazon, Walmart and Target can't match. It has also been weighed down by the challenges facing the toy industry at large, which has lost steam amid lack of innovation and alternative entertainment on smartphones and tablets.

    The retailer may soon be forced to renegotiate the terms of its debt with its lenders in hopes of emerging from bankruptcy.

    Click here to see a map of the closing Toys R Us locations.

    Shoppers push their carts toward a Toys R Us store with a closing sign.
    Getty Images
  • Sears

    Sears Holdings announced its plans to close 64 Kmart stores and 39 Sears stores by April of this year.

    The department store has been struggling for years, as management has failed to bring in big-name apparel brands, and liquidity troubles have hindered store upkeep and investments.

    More store closures are expected in 2018, too. Sears is currently working with its landlords to find replacement tenants for its stores, so that it can move out, sources tell CNBC.

    The retailer also has massive debts coming due, and it's been working to either delay those maturities or seek new financing. It also has floated the possibility of selling more assets, including its Kenmore and DieHard brands and Sears Home Services.

    Late last month, Sears laid off 220 employees, primarily at its corporate headquarters in Hoffman Estates, Illinois.

    Click here to see a map of the closing Sears and Kmart locations.

    Store closing signs at Sears in the Laguna Hills Mall, Laguna Hills, Calif.
    Scott Mlyn | CNBC
  • Macy's

    Earlier this year, Macy's revealed about a dozen stores that it would be closing next, part of its previously disclosed plan to trim the retailer's massive store fleet and cut back on expenses.

    Macy's, one of the nation's oldest department stores, also has one of the country's largest store fleets, a byproduct of the many mergers and acquisitions in its past. As shopping habits have changed though, Macy's has been forced to rethink its store base.

    It has also been forced to re-examine store size. Shoppers, who now buy fewer clothes in smaller spurts, no longer require the thousands of square feet of shopping space that they used to.

    The department store has been exploring options to rethink about 50 of its stores with Brookfield Asset Management, including its flagship Herald Square location in New York. It has also started leasing back portions of its buildings to outsiders such as Amazon, Starbucks and Apple.

    Click here to see a map of the closing Macy's locations.

    A Macy's store at CityPlace in West Palm Beach, Florida.
    Getty Images
  • Bon-Ton

    Regional department store chain Bon-Ton has announced the 42 locations that it will be closing next in 2018, following years of declining sales.

    The stores set to close operated under various banners — Carson's, Younkers and Herberger's — and span states such as Idaho, New York and Ohio. Meanwhile, the department store chain has laid out a restructuring plan that includes opening smaller locations, resetting its inventory to move away from seasonal fashion accessories and growing its private-label brands.

    The company recently entered into a forbearance agreement after failing to meet a deadline for debt payments. A Reuters report Friday, citing people familiar with the matter, suggests a bankruptcy filing could come as early as Sunday. If that occurs, it will be the first major U.S. retailer to file for bankruptcy this year.

    Click here to see a map of the closing Bon-Ton locations.

    A logo sign outside of a The Bon-Ton retail store in Lancaster, Pennsylvania on July 30, 2017.
    Sipa | AP Images