OK, so maybe I’m a little premature in predicting the death of retail (referring to traditional brick-and-mortar stores). Yes, retail stores got a little bump this holiday season, with sales a fraction higher than the last few holiday seasons. But, if you went shopping AFTER Christmas, like millions of other Americans, you found store shelves fully stocked with merchandise priced at huge discounts. So, the year may have been good, but not as good as stores expected–hoped?
Instead, what we saw were packages with little smiley faces stacked on doorways all around the neighborhood and delivery trucks making multiple passes down streets each day leading up to the big day. That’s right, folks did their holiday shopping online at stores like Amazon as well as online versions of traditional brick-and-mortar stores, like Walmart. In fact, Amazon and Walmart are in a struggle for the lion’s share of the online shopper’s wallet.
The death of retail
I remember 20 years ago when I first heard predictions of the death of retail. I was still a doctoral student and a professor prophesied the death of retailing, brick-and-mortar retailing, that is, in a presentation at a conference. I remember thinking he was crazy and maybe I’m a little crazy for thinking it now, but the evidence is mounting.
Consider these high-profile closures, for example:
- Sears announced it lacked confidence in its ability to sustain operations. They’ve already closed all their retail stores in Canada. That was part of the over 350 stores closed in 2017. I was shocked a few years ago when I found out they were closing their catalog operations. I mean, Sears was synonymous with catalogs. The west was built on the back of the Sears catalog! Now, the combined Sears/ Kmart venture plans to close 63 stores across the US [source].
- Bon-Ton – 40 stores, according to the same source.
- J. Crew – 50 stores, which leaves many malls with empty spaces.
- Gap and Banana Republic – 200 stores, again according to the same source. I mean 200 stores, that’s a lot of stores. And, it’ll leave a big hole in many malls that traditionally had one or both stores. Of course, Gap plans to open more Old Navy and Athleta stores than this, so maybe the malls will be ok.
- Teavana – 379 stores. That is all its stores. Teavana, which was kind of a Starbucks for tea drinkers without the benefit of being a comfortable 3rd place, lost its fight–read more about 3rd places at Fast Company. But, of course, Starbucks owns Teavana so they lost to themselves. Maybe they’ll fill the spaces with even more Starbucks–like we need any more. The closings show that Starbucks doesn’t understand what really made their coffee shops successful.
- Michael Kors – 100-125 stores.
- New York and Company is closing all its stores.
And those are just closures forecast for this year. Last year, you remember the one we just celebrating as ending a few days ago, saw the closures of a large number of Macy’s, JC. Penneys, Payless Shoes, J. Crew, Gymboree, Bebe, Radioshack (which is mostly gone), The Limited, HHGregg (which ceased operations completely), and a bunch of other well-known chains.
FoxBusiness calls this a retail apocalypse and blames it on Amazon and other online retailers who saw record sales this year–$7 Billion on Cyber Monday alone. But, CNBC has another theory–that high debt ratios forced retailers already operating with small margins, to close down. And, while it might be easy to blame those debt ratios on poor operational decisions, private equity buyouts share a big part of the blame.
Are rumors of the death of retail premature?
Speaking of buyouts, Jeff Bezos of Amazon fame is rumored to be thinking about making a run for Target as Amazon bucks the trend and focuses on buying brick-and-mortars to support online retail. Amazon just bought Whole Foods, for instance, which creates synergies with its own Fresh Direct online option. Buying Target makes sense, especially when you think about its biggest online competitor right now-Walmart. Having a Target store opens up all kinds of options for “buy online/ pick up in-store” just as Walmart is doing currently. It also might take the sting (and cost) out of returning online items, which is much cheaper if you return it to your local store rather than having UPS return it to Amazon. It’s like creating millions of square feet of Amazon lockers.
Over the years, Amazon has been smart and taken a long-term view of its business. That strategy works for them. In the late 1980s, when Dot coms were failing–and failing hard–Amazon predicted it would remain in the red for the next 5 years as it focused on building its regional warehouses and technology. Everyone, except me, predicted the company would never reach profitability. It turns out that focusing on infrastructure rather than returning profits to investors was the right move. And, investors made out in the long-run better than if they’d taken a short-term gain back then.
The upshot of this is I wouldn’t discount brick-and-mortar retail as long as Amazon is bullish on it.
[update] The global pandemic did what was unthinkable as late as 2019. Lockdowns shuttered most retailers, except those in industries like groceries, pharmaceuticals, and other essential businesses. Even for stores that were open, many consumers chose to do curbside pickup or have their items delivered by local drivers. Will we, collectively, return to a world where we shop in person for items, or will we find our newly acquired habit of shopping online too convenient to give up. My guess is it depends on the type of retailer. For instance, we like trying on clothing and shoes to determine how they look on our bodies as size isn’t always a good indication of what fits. For other items, we may continue buying online because the products we purchased were acceptable and the shopping experience was convenient. We also found a lot more options available through online retailers; making the notion of shopping in a store unappealing.
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