The convenience store chain 7-Eleven revealed a concerning trend for the retail sector: it will close 444 failing locations across North America. At a quarterly results conference, its parent company, 7 & i Holdings, disclosed this decision on October 13, 2024.
Although the company did not specify which sites will close, this move highlights merchants’ ongoing challenges in the current economic environment.
Decreased Traffic and Sales
7-Eleven’s visitation statistics have decreased since the start of 2023; in August alone, there was a significant 7.3% decrease in customer visits. This drop in foot traffic has been attributed to various factors, including inflationary pressures and a dramatic reduction in cigarette sales.
The trend of consumers looking for other shopping options due to rising prices for necessities is affecting convenience store business models.
There are currently over 13,000 7-Eleven locations in the US and Canada. Shop closures aim to increase profitability and streamline operations. According to the company, these closures will result in an annual run rate rise of $110 million and an operational profit of around $30 million.
Problems with Consumer Expenditure
In its earnings announcement, 7 & I Holdings highlighted the “tough consumer spending environment,” particularly about lower and middle-class customers. The industry witnessed a “growing polarization of consumption,” wherein low salaries and unfavorable working conditions caused people’s purchasing habits to shift.
With rising borrowing rates and high inflation rates, consumers are finding it increasingly difficult to make discretionary expenditures.
7-Eleven’s challenges are not unique. Because of the unpredictable state of the economy and changing consumer behavior, retailers need to reevaluate their business plans.
Strategic Property Management
Last month, 7-Eleven decided to sell a portion of its North American assets under a sale-leaseback agreement. No specified locations were given.
Still, this agreement is expected tobe completed by February 2025. The company anticipates this deal will bring in around $520 million, providing it with a much-needed cash infusion to help it through these difficult times.
The Convenience Store Industry’s Competition
The matter is further complicated by the fact that 7-Eleven is receiving a purchase bid from Alimentation Couche-Tard, the parent company of the Circle K chain. After initially declining a bid, Couche-Tard raised its offer to $47.2 billion, demonstrating a strong desire to purchase 7-Eleven’s shares.
The potential acquisition might significantly increase the complexity of 7-Eleven’s long-term planning and operating strategies.
Expanding the Diverseness of Commercial Activities
To bolster its business strategy, 7 & I Holdings declared its plan to establish York Holdings Co., a new firm focused on non-convenience store ventures, such as supermarkets and specialized retail.
The objective of this diversification is to lessen reliance on the convenience store sector, which has been particularly vulnerable in the current market climate. The company plans to grow to access more stable revenue streams and counteract the consequences of declining convenience store traffic.
The Retail Environment The 7-Eleven closures are part of a wider pattern of significant store closures. Last month, Walgreens said it will close a “significant portion” of its underperforming stores over the next three years. CEO Tim Wentworth said ongoing difficulties in the operational environment were a major contributing factor in these closures.
Comparably, in April 2024, the neighborhood bargain store 99 Cents Only declared that it was closing all 371 of its sites in Arizona, California, Texas, and Nevada.
The company attributes the choice to the “unprecedented impact of the COVID-19 pandemic, shifting consumer demand, rising levels of shrink, persistent inflationary pressures, and other macroeconomic headwinds.” These factors have made it more difficult for these firms to operate effectively.
Implications for the Future
The shutdown of 444 7-Eleven locations reflects not only the company’s success but also shifting consumer habits and broader economic challenges. As inflation continues to strain household finances, convenience stores and other companies must adapt to meet their customers’ changing needs.
The future of 7-Eleven will rely on its strategic decision-making capacity and in-depth knowledge of market dynamics. The intended foundation of York Holdings Co. makes clear its ambition to broaden operations, and the potential purchase by Couche-Tard might significantly alter the competitive landscape of the convenience store sector.
Conclusion
Convenience companies face several challenges in the current market, as seen by the 7-Eleven locations shutting amid economic headwinds for the retail sector. Because of shifting consumer buying patterns and the effects of inflation on budgets, retailers struggle to draw in customers and maintain a profit.
The announcement of the closure disappoints communities and employees, but it also reminds the retail sector of how flexible it must be. 7-Eleven and other retailers need to prioritize understanding consumer preferences, managing operational efficiency, and seeking out new development prospects as they navigate these turbulent seas. The future of convenience retail will depend on its ability to change with the times.
READ MORE: Wendy’s Is Now Offering a $1 Menu Deal