The US retail industry is passing through one of its most impactful change in decades. What appears on the surface to be a wave of store closures is, in reality, a large-scale redistribution of consumer spending and retail space. After 7,325 store closures in 2024, projections indicate that nearly 15,000 stores could shut doors between 2025 and 2026 as department stores, mall-based retailers and legacy chains complete long-delayed rationalization programs. Yet industry observers say this is not a retail collapse. Instead, it reflects a reordering of where consumers shop and what they value.

The biggest casualty is the traditional middle market. For years, mainstream retailers thrived by offering broad merchandise assortments through extensive store networks. Today, shoppers are gravitating toward either extreme value propositions or highly targeted products that solve specific needs, creating what many analysts describe as a ‘barbell economy’.

The middle market squeeze

The changing economics of physical retail have forced many established brands to rethink their store footprint. For long, large store networks generated visibility, convenience and demand. However, rising operating costs, changing consumer habits and the growth of digital commerce have weakened those advantages. Retailers are now evaluating locations based on profitability and demand density rather than market presence alone.

Department store operator Macy’s exemplifies this transition. Through its ‘Bold New Chapter’ strategy, the company is closing 150 underperforming stores by the end of 2026 while concentrating investment on approximately 350 stronger-performing locations. The pressure extends beyond department stores. Children’s apparel retailer Carter’s is expected to close roughly 150 stores as it deals with tariff-related cost pressures and workforce reductions. Grocery giant Kroger is also streamlining operations, planning to shut around 60 locations to improve network efficiency and supply-chain economics.

The message from these decisions is clear: physical stores are no longer strategic assets simply because they exist. They must generate measurable returns and support a broader omnichannel ecosystem.

Value retail takes the lead

While traditional operators shrink their footprints, discount and off-price retailers are aggressively expanding. Inflationary pressures and higher consumer price sensitivity have altered shopping behaviour, making value- retail one of the strongest growth engines in the sector. Discount and essential retail formats now account for an important share of new store openings.

Table: Expansion plans among key retailers

The common thread among these retailers is a focus on productivity rather than scale alone. Dollar General continues to expand into underserved communities while developing larger DG Market formats that capture grocery spending. Ollie’s Bargain Outlet benefits from a steady stream of excess inventory generated across the broader retail ecosystem.

Meanwhile, Uniqlo is building its growth around wardrobe essentials and functional basics rather than seasonal fashion cycles. Nordstrom Rack has also emerged as a beneficiary of changing shopping habits by offering consumers branded products at discounted prices through convenient off-mall locations. Rather than maximizing square footage, these retailers are optimizing inventory turnover, customer frequency and margin efficiency.

A bookstore’s unlikely comeback

Perhaps the most striking example of retail reinvention comes from Barnes & Noble. Once viewed as a symbol of brick-and-mortar decline, the bookseller is now pursuing an expansion strategy that includes approximately 60 new stores. Its resurgence stems from abandoning standardized retail formulas in favour of local relevance. Under the new model, individual store managers have greater autonomy over product selection and merchandising. This approach allows each location to reflect the preferences of its local community while benefiting from the scale and logistics capabilities of a national retailer.

The strategy has produced encouraging results, including an 11.1 per cent increase in foot traffic during mid-2024. By combining local curation with national infrastructure, Barnes & Noble has positioned itself between independent bookstores and the algorithm-driven efficiency of e-commerce giants. The turnaround highlights a broader industry lesson: consumers reward authenticity, local relevance and differentiated experiences.

The rise of smaller stores

Another defining trend is the move toward smaller, more efficient store formats. Retailers are discovering that profit often improves when square footage decreases. Smaller locations require lower capital expenditure, reduced staffing costs and faster inventory turns while still allowing brands to maintain a physical presence. Outdoor retailer REI and apparel company L.L. Bean are among the brands experimenting with compact formats that deliver specialized experiences without the costs associated with traditional big-box stores.

This small-box approach reflects a broader shift toward precision retailing, where stores are designed around specific customer missions rather than broad product assortments.

Utility over brand theatre

Consumer priorities are also evolving. Private-label products have become more attractive, with store-brand sales reaching an estimated $271 billion. Younger consumers, particularly Millennials and Gen Z, are viewing private labels as credible and often more authentic alternatives to premium-priced national brands.

At the same time, shoppers are placing greater emphasis on utility and functionality. Performance apparel, everyday essentials and problem-solving products continue to gain market share, while undifferentiated fashion and discretionary categories face growing pressure. The shift suggests that retail success increasingly depends on delivering tangible value rather than relying solely on brand prestige or marketing narratives.

The new retail formula

As the industry moves through 2026, retail growth is becoming more selective and data-driven. The strongest performers are concentrating on either high-margin premium segments or high-volume value retail, while many traditional middle-market operators struggle to maintain relevance. Digital integration has also become essential, with services such as ‘Buy Online, Pick Up In Store (BOPIS)’ helping retailers convert online demand into store traffic.

The retail sector once expanded through blanket geographic coverage and ever-larger footprints. Today, success is determined by targeted expansion, localized relevance and operational efficiency. The industry is not witnessing the end of physical retail. Instead, it is entering a new era where fewer stores, stronger economics and sharper consumer propositions are defining the next phase of growth.