Lidl is a grocery store chain owned by the European Schwarz Group, a massive corporate conglomerate, whose sales are of a size that make it the fifth biggest retailer in the world. Lidl, as a division of it, has 10,000 stores in Europe and in 2015 began an expansion effort in the United States, which it accelerated in 2017. It currently is operating about 150 stores on the east coast.
One of those stores has been in Danville, Virginia and it recently announced that it was going to close this store on July 31, 2022, due to it being an “underperforming location within our strongly growing store network.” By making this remark, the Lidl spokesperson made it sound like it was the people of Danville’s fault that the store is closing. It even suggests that there could be something wrong with the area.
I believe that these remarks are deflecting attention away from Lidl’s own corporate mistakes or market failures. This is not the only case where Lidl has done this. It also is closing a store in Rocky Mount, North Carolina, which it has also labeled as “underperforming.” Just as it announced this, the Wawa grocery chain released a statement saying that it was going to open a store in Rocky Mount, so nothing is wrong with the Rocky Mount market. Another Lidl location is also closing up in Newport News.
A year ago the Wall Street Journal published an article in which it warned that grocery store chains were likely to come under pressure due to simple over expansion. The amount of food people buy in an area doesn’t grow much if the population remains stable, so when more stores are built in one place they compete with one another. In Danville, the Lidl spot is surrounded by other grocery stores within less than a mile radius that were already there. They are an Aldi, Sam’s Club, and Food Lion, all of whom already were doing more sales than this Aldi’s location was doing. Instead of a failure of the Danville market, perhaps the Lidl corporate bosses simply overreached in their expansion plans or made poor ones.
Maybe Lidl built too many stores!
The Wall Street Journal article noted that “the number of grocery stores continues to grow, clogging the market. In the past two years, the number of these stores with at least 5,000 square feet rose by 1,253 to 23,603, according to CoStar Group. In the prior two years, the number of stores were basically unchanged.”
Supermarket chains have a history of expanding too fast, and sometimes even going bankrupt as a result. Bi-Lo, for instance, went bankrupt in 2018, closing 100 stores. Meanwhile, Kroger is also closing locations. Today there are 4.5 square feet of grocery store footage per person, a figure 30 times higher than it was in 1950.
Was this a bubble in square grocery store footage?
Perhaps that is the number one factor in Lidl’s Danville store closing.
Corporate CEO’s and board of directors need earnings growth to argue that they are doing a great job so they can get higher pay, and, if the company is public, stock options. That often leads them to borrowing money to grow and to even grow as fast as they can, even if turns into an eventual disaster for their company after they leave. This is one reason why chains often boom and collapse.
We had over a decade of ultra-low interest rates on the part of the Federal Reserve that made it easy for companies to borrow money cheaply to grow. Take a trip across the highways of the America and you’ll see a landscape dotted with the same stores everywhere, with growth financed by cheap debt. The amount of money in the economy exploded as you can see from this chart by the St. Louis Federal Reserve of the M1 money supply.
This money didn’t just go into building things, it also went into extreme speculation in the financial markets, with the most blatant example being crypto currency; and it even contributed to the inflation busting consumer price rises people are suffering from today. Now the stock market is falling this year, as the Federal Reserve raises rates to try to beat down inflation and the money supply growth decelerates.
How long this will go on for no one can predict.
But the closing of Lidl is just not too far unrelated from the falling stock market this year. Many corporations are pairing back, cutting back on what they are now labeling as “underperforming” investments they made when interest rates were near zero and stocks were rising.
Neither the Danville consumer or market had nothing to do with the failure of Lidl in Danville to catch on.
The city of Danville is not an “underperforming location.”
Lidl simply failed to out compete the other grocery stores that were already near it and thereby failed to get a foothold in the market.
And the truth is, one can go up the road from the Lidl location, a few down miles down highway 58, to Chuck’s Meats & Deli, or across the river to Midtown Market, and get fresher, and better, meats from stores owned locally by people who live in the area. Midtown Market has been here for one hundred years and isn’t going anywhere. Lidl built a store in Eden, North Carolina and never even opened it.
Five days a week I send out an email full of the top business and regional headlines of the day.
To get access to these free alerts just subscribe by clicking here.
-Mike
