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I am curious regarding the current retail contraction and how much of it can be pinned solely on e-commerce. The thing is, many of these stores overexpanded during the 2000s to a level that can not be sustained. There is also changing trends. For instance, what was popular with teens ten years ago, like American Eagle, A&F, Aeropostale, etc might not be popular with today's teens. Those stores either have to re-invent themselves to win back the adults who wore their clothing as teens, or go out of business.
Thing is, there are some things you can't or wouldn't want to buy online (or at least not everyone would want to). Movies, music, and niche electronics have already went completely online unless you happen to live in one of a few major cities. General consumer electronics, such as Best Buy, Apple Store, etc have shown to still work in brick-and-mortar format, though they have to be leaner and more consumer focused than they would have had to be a decade ago. Then there are things you can buy online but not everybody would want to like clothing. I don't think clothing stores will ever be able to be replaced by online shopping. First and foremost, you can't try something on to know how it will look on you when ordering online, and second, returning something bought online if you don't like it is a pain in the arse.
So I am not sure e-commerce is the complete story, though many people like to say it is. How much do you think the contracting retail market is e-commerce and how much can simply changing trends?
E-comm isn't all to blame. E-comm is getting killed by returns/shipping. I think big box retail is contractin because of they're giving up their market shares to niche vendors by not catering to the neglected consumer. It's a buyers market. The days of retailers dicating trends are over. It's time for a more populist frame of mind for retail.
E-comm won't replace the store. The brick and mortar just has to adjust to changing tides. Perhaps carrying less stock and just doing showrooming?
E-commerce is only 8% overall of retail. Basically it has replaced the old catalog business of the past.
Stores closing, is something that has gone in the past. They close when they become unprofitable, or when they need completely rebuilt. Due to all the people traffic, the building just wears out so they close that store and open another when the lease expires.
In some areas of the country, they would have several stores in a city. Some would be growing in business. Others would be going down, and when they reach the point a particular store is no longer profitable they close it, and do their business in the store that is profitable.
Changes in mall popularity. Changing neighborhoods, with changes in the demographics of the neighborhood, higher quality stores than the local residents to that neighborhood frequent, they loose their business as the shoppers move to another of the city. When it drops to where the store is no longer profitable they close he store. When this happens in a shopping center, and the main large tenants pull out, the owners may close the mall as it is not profitable to keep the mall open.
Actually total retail sales have increased every year of late, but no matter how good the overall market is, some stores will be closed every year as they are no longer profitable in that location. They may close a Macy's in one area of town, and a Walmart may be built in that same general vicinity, as higher end shoppers will go to another location in town to shop at Macy's, and Walmart in the same general area will boom.
In late 1950s, I was hired to general manage 2 unproductive furniture stores in a major city area. The owner owned a third store, that was going absolutely crazy with business. I had been brought in, to find if there was a way they could become profitable. I evaluated them both, and within 2 weeks had found there was nothing that could be done to make either one profitable and closed both of them. The old saying on real estate and business, there are three important factors that effect the livability and business potential, which are Location, Location, and after you get past those two factors you then consider Location. Both stores were in locations, that nothing could be done that would bring in sales that close, and could not be made profitable. The location of both, were beyond salvaging the stores. Closing stores that are not profitable, or are so old they no longer fit the image of the company, has been going on long before I was brought in to evaluate and close those two stores 60 years ago.
E-commerce is just a drop in the bucket for retail businesses, and is not the reason some stores are closing.
E-commerce will continue to grow. Walmart is spending two billion dollars this year and next to better handle online customers. They are offering discounts on some items now such as televisions if you order online and go to the store to pick it up. This starts next Wednesday. As soon as they can make it happen, they want to expand to 1,000,000 items that can be picked up at the retail locations, after being ordered on line. At that time, there will be a warehouse where they can keep the items to be ordered on line and delivered locally which a large portion are not stocked in the store itself.
Two years ago, my daughter in law needed a new lap top computer. She saw an on line ad for that particular computer with a great sale price. $100 less than offered in the store. She went down to the store wanting to buy it at the online price. They refused. She went to a demo computer, went to Walmart.com, and ordered it for store pickup. Called the clerk over, and showed him she had bought and paid for it for store pickup, and now needed to pick it up. He went in the back and brought it out to her, and told her she was the first one that had ordered online right in the store that was to deliver it to her.
It is complicated but there are a few things at play:
1. Over expansion, bad acquisistions
2. Very poor management and corporate debt loads
3. E-commerce
4. Trends and failure to adapt
5. Rise of specialty stores filling niches
Reality is the trends haven't been kind to Department stores and it is difficult to compete with all the other competition out there.
Old school high profit items are now getting discounted out by other sellers or substitutes are easy to find. So things like cosmetics and perfume are harder to sell at full price in a world of Amazon and Walmart.
Small appliances suffer the same fate.
Large appliances also have a ton of competition. Home Depot and Lowes are obvious big players and savvy shoppers can even get large coupons on purchases (10-20% off).
Tools, dime a dozen now. You either go cheap and buy whatever from Amazon, Walmart of Harbor Freight or pay for Dewalt brand types from the same places.
Clothing is another big one that has changed a lot. People have easy substitutes and seem to be less brand conscious. Clothing can be made anywhere as well so if someone can under cut you by 15% because they are in Indonesia or Vietnam vs Cambodia or whatever it can make a huge difference. So much competition and the cheap stuff gets better and better every year.
So these department stores are under attack from literally everywhere. Add to that people can price shop and check reviews from their phones in a few seconds for just about anything and it is a very difficult position to crawl out from. Especially as the aging population stuck in the older ways die off you're likely to see losses accelerate for these companies.
Those that stick it out have a better chance with each passing competitor dying. Circuit City and HH Greg passing gives Best Buy that much better of a chance to survive. Didn't say thrive, but survive. Same with Department stores when Sears goes what was left there will trickle to Penny, Macy's and Dillards etc. however the entire sector is limping out of the hospital AMA.
I would not downplay the effect of internet sales. I don't understand the statistics, but I do know that the category of retail sales includes cars, gasoline, major appliances, food, restaurants, and a lot of other items that are not conducive to internet buying. The impact on retail stores that handle electronics, clothing, and many similar items is a lot bigger than the 8% quoted above. In addition the impact of internet sales is growing at a rapid rate.
The changes can be seen where I live. No new malls have been built for many years. Strip malls construction is also stagnant. What is not stagnant is store closures. In some cases, when a store closes, another store may take its place. That has been happening less and less frequently. It is more typical for a store to close and nothing takes its place. We have more and more empty buildings. When Sports Authority closed, they left behind a building that is still vacant. The same with the closure of 6th Avenue Electronics. In fact that situation is even worse. The entire huge strip mall went under and the whole block is empty behind an 8' fence. There were two Subways near my house. One closed years ago and the building is still vacant. With all the closed buildings, you would think this is a dying neighborhood. The opposite is true. Unemployment is non existent and outside of retail the local economy is booming.
I think my buying patterns reflect general changes. I continue to spend the bulk of my retail dollars at the local gas station and the local Costco. I recently bought a car from a local dealer. But I rarely, rarely go to a mall. We buy virtually all our clothing online. All electronics online. All camera and sporting goods online. Online sales are so convenient I cannot imagine needing to go to the mall. In fact due to the dirt cheap prices I wont need clothes for years. For example, I wear a lot of Polo shirts. I want a 50:50 blend that wears well and does not feel like a wet rag in the heat of summer. If I try to shop at the mall, the shirts never seem to have a pocket. The choices are limited and they might not even have my size. Shopping online I had a choice of a dozen colors in any size I wanted. All with pockets and collars. The price including delivery was $3.30/shirt. Why would I ever go to a mall? You can say internet sales have minimal effect, but I don't believe it. Stores that specialize in clothing, electronics, hobby and sporting goods are at the edge of extinction.
I can tell you exactly what it is, and this is coming from the mouth of many Millennials.
Today's focus is travelling and dining out, mixed with social media. Today's youngsters are more concerned with posting where they're at and what they're eating than anything else. The days like when I was growing up, where all that mattered was gas in your gas tank and what labels on the front of your clothes, are over.
That, coupled with e-commerce, is why malls are dying and transforming into different sorts of Lifestyle Centers. You notice more lounges, coffee, and cheap clothing stores in malls now then retail space.
69C, I know you are on to something here. I don't think it is just Millennials who have changed. After the 2008 recession, even people who had plenty of money started to talk about being frugal and cutting back on expenses. To at least some extent conspicuous consumption dropped out of favor.
Wearing an Aeropostale t-shirt was not an example of conspicuous consumption. Tastes and preferences are ever changing. If these had led to net declines in overall demand, markets would have collapsed.
I am curious regarding the current retail contraction and how much of it can be pinned solely on e-commerce. The thing is, many of these stores overexpanded during the 2000s to a level that can not be sustained. There is also changing trends. For instance, what was popular with teens ten years ago, like American Eagle, A&F, Aeropostale, etc might not be popular with today's teens. Those stores either have to re-invent themselves to win back the adults who wore their clothing as teens, or go out of business.
Thing is, there are some things you can't or wouldn't want to buy online (or at least not everyone would want to). Movies, music, and niche electronics have already went completely online unless you happen to live in one of a few major cities. General consumer electronics, such as Best Buy, Apple Store, etc have shown to still work in brick-and-mortar format, though they have to be leaner and more consumer focused than they would have had to be a decade ago. Then there are things you can buy online but not everybody would want to like clothing. I don't think clothing stores will ever be able to be replaced by online shopping. First and foremost, you can't try something on to know how it will look on you when ordering online, and second, returning something bought online if you don't like it is a pain in the arse.
So I am not sure e-commerce is the complete story, though many people like to say it is. How much do you think the contracting retail market is e-commerce and how much can simply changing trends?
One thing never explains the entire situation, but it makes for good articles and news stories.
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