As someone with family whose livelihood directly relates to retail and fashion, one topic that I have become interested in are the issues retailers are facing across America. Every month there seems to be another famous retailer declaring bankruptcy or closing stores; earlier this month, Payless Shoesource declared bankruptcy and plans on closing 400 of its 4400 stores. Macy’s will close 68 stores in 2017, and earlier this year there were concerns that Sears could go bankrupt.
These are not isolated events due to a downturn in the business cycle: these are monumental structural changes in the nature of the US – and indeed the global – economy.
So, what is causing this massive change in the retail market? An article in The Atlantic by Derek Thompson suggests that it is beyond just the blanket term of “Amazon”. In his article, he argues that there are three core reasons for this shift away from brick-and-mortar retail: people are buying more stuff online, America has an oversupply of malls and consumer preferences have shifted away from basic materialism to more experience-based expenditures, such as dining out. A few notable statistics from this article were:
- Certain reports suggest that half of US households are Amazon Prime subscribers
- The # of malls in the US grew x2 as fast as the population during 1970-2015
- In 2016, Americans spent more money in restaurants and bars than grocery stores for the first time ever
These sentiments are shared by different authors as well. CNBC’s Krystina Gustafson similarly noted that although the shift to online shopping has played a role in the current issues facing retailers, massive overbuilding of commercial space and malls have also hurt retail. However, she did note that in-person store sales count for approximately 90% of the retail industry’s sales. That being said, an analyst still suggested that a majority of the major retailers listed in the article (such as Macy’s or Kohl’s) should close stores in order to be more competitive.
So, does this mean that Amazon, or online-only stores will rule the world in the future? It’s not exactly clear. A blog post by Bill McBride on CalculatedRisk looked at the vacancy rates in malls. Year to date the numbers are nearly stable (max +0.1%), not reflecting the mass exodus from the mall market that one might assume given all the bad news above. Furthermore, there is something to be said about the instant gratification and ease of having direct access to goods and services. Sometimes people can’t wait two days to receive their food or to receive some sort of good/service, so there will always be a necessity for brick-and-mortar business – especially when you consider that Amazon PrimeNow is not available everywhere.
The question then becomes: what is a large retailer’s value added in the modern economy? How does a modern retail giant not only deal with Amazon, but also “hipsters” or “artisanal stores”? Could Amazon possibly try hostile takeovers of poorly performing retail companies in order to speed up its dominance? Personally, I am sure there will always be concern with the status of small-businesses in America that will prevent everything from going digital – especially in urban areas that tend to house and foster many artists, young entrepreneurs, etc. However, the big issue is the potential massive loss of jobs: the BLS estimated that nearly 5 million people directly worked in retail of some sort in 2014. Should big-name retailers with massive operations fail to find their niche market or cut unnecessary costs to survive, there will be massive financial and labor implications for our economy.
By: Michael Morigi