The American retail sector is undergoing a profound transformation, marked by a wave of store closures and bankruptcies that underscores a fundamental shift in consumer behavior. This phenomenon, aptly described by “Remarkable Retail” author and podcast host Steve Dennis as the “collapse of the unremarkable middle,” highlights the growing divide in the market. Shoppers are increasingly gravitating towards either high-end luxury goods or low-cost value options, leaving traditional mid-tier brands in a precarious position. The repercussions are evident across the country, as once-ubiquitous names struggle to maintain relevance and solvency in this newly polarized landscape.
Indeed, the challenges facing retailers nestled between the luxury and discount segments are multifaceted and deeply rooted. Neil Saunders, managing director of GlobalData Retail, observes a clear pattern of middle-market players experiencing slowdowns. He articulates the dilemma succinctly, stating, “It’s the part of the market that’s under the most pressure, because it doesn’t necessarily have the allure of the luxury market, nor does it have the sharp bargain prices of the value end of the market.”
This erosion of the middle-tier market is not a recent development but rather the culmination of decisions spanning over two decades, as noted by Dennis. Before the advent of the internet, retail competition was primarily localized, with stores competing with those down the street. However, the rise of e-commerce introduced a vast array of new retailers and provided consumers with unprecedented power of choice.
In response to this shifting landscape, many retailers attempted to differentiate themselves through various strategies, including deals, diverse assortments, and enhanced customer service. Some also ventured into new segments like off-price and beauty to broaden their appeal. Yet, those who failed to adapt swiftly found themselves in an unenviable situation, making it “very difficult to play catch-up,” as Dennis emphasized.
Today’s consumer market is distinctly bifurcated, favoring either premium experiences or extreme value. This dynamic creates a “barbell economy,” where growth concentrates at the market’s high and low ends. This leaves retailers in the middle struggling to find a consistent customer base, squeezed by forces from both directions.
Economic pressures, particularly inflation, have played a critical role in exacerbating this polarization. After years of relatively stable prices, inflation surged dramatically in 2021–2022, reaching 40-year highs. By mid-2022, it peaked at over 9%, significantly increasing the cost of essential goods and services.
While inflation has since moderated, prices remain elevated, approximately 20% higher than in 2020, according to Coresight Research. This persistent increase in living costs has profoundly eroded the disposable income of middle-class families. Consequently, these consumers are less inclined to spend on mid-priced, discretionary products.
Many families now strategically allocate their budgets, occasionally splurging on luxury items while relying heavily on low-cost alternatives for daily necessities. This calculated spending behavior effectively bypasses and undermines the traditional mid-tier retail model. As Deborah Weinswig, chief executive at Coresight Research, observes, “Price-sensitive consumers are looking for the best prices and finding them online.”
Beyond consumer spending, inflation also exerts immense pressure on retailers’ operating costs. Wholesale merchandise costs have risen, alongside increased expenses for transportation, utilities, and other supplies. Retailers face the difficult choice of passing these elevated costs onto consumers, risking further sales declines, or absorbing them, which inevitably compresses already thin profit margins.
Party City, for instance, explicitly cited an “immensely challenging environment with inflationary pressures driving up costs and consumers pulling back on party spending” as a factor in its struggles. Similarly, Joann, which experienced a temporary craft boom during the pandemic, saw sales plummet and could not service its debts amid rising costs and intense competition. This combination of reduced sales and increased expenses creates an unsustainable operating environment for weaker retail players.
Compounding the inflation problem is the rapid ascent of interest rates over the past two years. In an effort to curb inflation, the U.S. Federal Reserve aggressively raised benchmark interest rates from near 0% in early 2022 to approximately 5% by 2023, representing the fastest increase in decades. These higher rates have far-reaching implications for retailers and their financial health.
Primarily, it has become significantly more expensive for businesses to borrow money. Retailers frequently rely on credit lines to finance inventory purchases or secure loans for opening new stores and upgrading existing facilities. As interest rates soared, the cost of servicing existing debt ballooned, and access to new credit tightened considerably, particularly for less profitable companies.
Retailers already burdened with heavy debt loads have proven especially vulnerable in this environment. Many chains had accumulated substantial debt over time, whether through financing ambitious expansions, acquiring competitors, or as a consequence of private equity leveraged buyouts. Now, the financial obligations are coming due, often at significantly higher interest rates.
Rite Aid serves as a stark example, having struggled under a staggering debt pile exceeding $3 billion. The company found itself unable to refinance its loans affordably as rates climbed, leading to multiple bankruptcy filings. Its initial Chapter 11 filing in 2023 helped shed some debt, yet it emerged with $2.5 billion in obligations, ultimately succumbing to “high debt, inflationary pressures and increased competition” and filing for bankruptcy again in 2025.
Numerous other debt-laden retailers, including Joann—whose private equity owners had burdened it with substantial loans—and Party City, also found themselves unable to meet creditor demands as sales declined. This situation often forced them into bankruptcy protection and resulted in widespread store closures. The connection between heavy debt and retail failures is evident in industry data.
In 2024, over half of the major U.S. bankruptcies among companies with over $1 billion in liabilities involved private equity-backed retailers. This trend intensified in the first quarter of 2025, where seven out of ten significant bankruptcies involved companies owned by private equity firms. These firms often load retailers with debt and then withdraw further investment if the business falters, leaving them highly exposed when interest costs climb.
Furthermore, high interest rates have indirectly curbed consumer spending on credit, impacting retail sales. Shoppers have faced record-high credit card interest rates, often exceeding 20% APR, prompting them to reconsider carrying balances for major purchases. Financing for big-ticket items like appliances or furniture has also become pricier, deterring some consumers. This shift towards a more cautious consumer, combined with a harsher financial landscape for retailers, has created a formidable challenge.
It is impossible to discuss store closures without acknowledging the persistent and accelerating rise of e-commerce. American consumers have steadily shifted more of their spending online, a trend dramatically amplified during the COVID-19 pandemic. Even with the resumption of in-person shopping, many consumers have retained their online habits, valuing convenience and competitive pricing.
By late 2024, online sales constituted approximately 16% of all U.S. retail sales, a notable increase from about 11% in 2019. This significant migration of retail dollars to websites and apps has directly diverted sales away from physical storefronts, placing immense pressure on traditional brick-and-mortar retailers, particularly those without robust online channels.
Consumers today can effortlessly compare prices with a simple click, often discovering superior deals or a broader selection on platforms like Amazon compared to local stores. This competitive dynamic has led many established retailers to lose sales to their digital counterparts. Joann, for example, saw its market share steadily eroded by online retailers and more efficient brick-and-mortar competitors, as customers opted for platforms like Amazon or Etsy, or large craft superstores.
Similarly, Bed Bath & Beyond struggled considerably as home goods buyers migrated to Amazon, Wayfair, and other online platforms. The convenience of free shipping directly to their doors undercut Bed Bath & Beyond’s once-dominant advantage of abundant in-store coupons. The competition extends beyond established e-commerce giants.
New online-only startups have emerged, offering aggressive pricing that physical retailers struggle to match. Fast-fashion and bargain sites like Shein and Temu have surged in popularity, undercutting mall stores on a range of items from apparel to home accessories. This influx of e-commerce players has “pressured niche retailers,” forcing them to contend with global online marketplaces.
Even retailers successfully integrating e-commerce have sometimes chosen to reduce their physical footprint. As more sales transition online, companies can effectively serve the same demand with fewer stores, often complemented by delivery or curbside pickup services. For instance, CVS and Walgreens have been closing some stores as a greater proportion of pharmacy orders shift to mail delivery or digital fulfillment.
Hand-in-hand with the e-commerce boom are broader shifts in consumer behavior that have significantly reduced foot traffic to many traditional stores. Contemporary Americans shop differently than they did a generation ago, challenging the long-standing retail format. A major shift involves how and where people choose to shop in person.
Many consumers now prefer quick, highly convenient shopping trips, such as stopping at a local Target or Dollar General, or making purchases as needed, rather than dedicating hours to browsing large malls or department stores. The era of the weekly mall visit has waned; today’s shoppers are more mission-oriented or engage virtually. The COVID-19 pandemic markedly accelerated this transition.
When malls and stores temporarily closed in 2020, consumers discovered alternative shopping methods, and a segment never fully reverted to their old routines. As of late 2024, foot traffic in many retail locations had not entirely recovered to pre-pandemic levels. Analysts observe that consumers are increasingly prioritizing value and convenience, pushing them towards either discount chains or seamless online experiences.
Amidst these formidable challenges, some middle-tier companies are actively seeking to recalibrate their business models. Strategies include bolstering their lower-tier or higher-end offerings, effectively mimicking the market’s polarized demand. Target, for example, introduced a new value-based line called Dealworthy, featuring hundreds of items priced under $10, aiming to capture the budget-conscious segment.
Similarly, an increasing number of beauty brands are entering off-price retailers, with names like Too Faced, The Ordinary, and Mac now available at stores such as Nordstrom Rack. However, pursuing the lower-end market carries inherent risks. Dennis warns against a “race to the bottom,” noting that competing with entities like TJ Maxx on price necessitates a willingness to accept significantly lower profits.
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He questions the rationale of investing substantial capital to open numerous lower-price stores only “to earn a terrible return.” Despite these risks, other viable options exist for adaptation and growth. Some middle-tier players have successfully cultivated their audiences by meticulously incorporating customer feedback into the development of new product lines and services.
This customer-centric approach has, in some instances, led to a complete overhaul of a brand’s image and fortunes. Abercrombie & Fitch stands as a compelling example of such a transformation. In 2016, the American Customer Satisfaction Index named Abercrombie & Fitch America’s “most hated retail brand.” Yet, since 2017, the company has undergone a dramatic revitalization.
Under new leadership, Abercrombie & Fitch revamped its influencer program, embraced modern styles and silhouettes, and heavily relied on data analytics and features like Buy Online, Pick Up In Store (BOPIS). This strategic pivot bore fruit, culminating in the company becoming the best-performing stock on the S&P Index in 2023. This remarkable turnaround underscores the power of responsive adaptation.
American Eagle, another middle-tier player, has also successfully grown by amplifying its high-performing Aerie business. Earlier this month, American Eagle reported a record revenue of $1.7 billion during its fourth quarter, demonstrating the efficacy of focused growth. Its chief financial officer outlined a path toward “consistent 3 to 5 percent revenue growth,” citing inventory optimization, efficiencies, and rigorous cost management.
Neil Saunders maintains that being a middle-tier company, while challenging, is not an insurmountable obstacle. He asserts, “You can still perform in the middle part of the market, but you have to be very customer-centric and very focused on what the customer wants to buy.” Saunders emphasizes the importance of chasing trends and consistently offering “really good value for money.” He specifically lauded Abercrombie & Fitch for its responsiveness, such as rolling out a wedding shop based on customer feedback.
Furthermore, many struggling middle-tier retailers often receive a crucial second chance through new ownership. Toys R’ Us, for instance, filed for bankruptcy in 2017, underwent a liquidation sale in 2018, and was subsequently acquired by Tru Kids Inc. In 2021, WHP Global took over, with plans to open 24 new Toys R’ Us stores across the U.S. this year, signaling a potential comeback.
Barnes & Noble also engineered a notable resurgence after fears it would follow the path of Borders. The bookseller opened 30 stores in 2023 and an additional 60 last year, alongside redoing its membership program, demonstrating a renewed appeal for physical bookstores. Even Joann, despite its recent bankruptcy filing, expresses confidence in its future.
Chris DiTullio, Joann’s chief customer officer, stated, “We are excited by our progress on both top and bottom-line initiatives in the past year and are confident the steps we are taking will allow Joann to drive long-term growth.” This illustrates that even amidst distress, a focus on strategic initiatives and customer needs can foster optimism.
The “Retail Apocalypse,” a term coined to describe the widespread store closures, reflects the deep-seated issues facing retailers historically catering to the middle class. Experts like Steve Dennis predict “more store closures and bankruptcies” this year, particularly for those in the “unremarkable middle.” This phenomenon is intrinsically linked to the growing wealth disparity in the U.S., where a shrinking middle-income consumer base leaves fewer shoppers for these traditional retailers.
In 2024 alone, U.S. retailers announced over 7,300 store closures, a 57% increase from 2023 and the highest annual number since 2020. Major chains like Family Dollar closed 718 stores, while CVS and Walgreens combined shuttered over 1,000 locations. Big Lots closed nearly 600, and Party City entered liquidation, underscoring the severity of the contraction.
The early years of the pandemic offered a temporary reprieve, as federal stimulus payments and “revenge spending” saw consumers indulging in items for their homes. However, this proved to be a fleeting “sugar high,” with struggling chains once again faltering as interest rates soared and consumer spending on discretionary items waned. The Container Store, for example, boomed in 2021 but proved vulnerable to a frozen housing market and a shift in middle-income shoppers seeking discounts.
Looking ahead, the “barbell economy,” where growth is concentrated at the high and low ends of the market, is poised to define the future of retail. Greg Portell, a senior partner at Kearney, cautions that retailers should “expect continued degradation of the middle market.” For middle-tier brands, survival hinges on making decisive choices: either reinvention as premium offerings or restructuring to compete as value leaders.
Those that remain stagnant risk irrelevance in the eyes of a rapidly evolving consumer base. However, the retail sector is far from moribund. Major chains announced nearly 6,000 store openings last year, a 6.5% increase, largely targeting bargain hunters. German discount grocer Aldi plans 126 new stores, and discount clothing stores like TJ Maxx, Burlington, and Ross Stores continue to expand robustly.
The future of retail, while undoubtedly challenging, presents a dynamic arena where only the most agile, customer-centric, and strategically positioned enterprises will not only endure but thrive. The collapse of the unremarkable middle, rather than signifying an end, signals a profound recalibration, inviting innovation and bold transformation to reshape the very fabric of how America shops.
