The Retail Meltdown of 2017
Retail in the US is struggling, even while retail spending as a whole is growing – if slowly. There are some unmistakeable trends influencing how and what Americans are buying.
The below is from a recent article in Reuters.
There have been nine (major) retail bankruptcies so far in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare.
What is going on?
1. The rise in e-commerce, aka Amazon + disruption + mobile pay (tech) = changing habits
"Between 2010 and 2016, Amazon’s sales in North America quintupled from $16 billion to $80 billion. Even more remarkable, according to several reports, half of all U.S. households are now Amazon Prime subscribers."
Online shopping is no longer simply a resource for books and entertainment purchases. Online retailers have instituted easy return policies, which minimizes risk, and implemented mobile wallet technology that simplifies the payment channel. As a result, apparel is now the largest e-commerce category.
The other side effect is that because people are not driving to a store to browse, they are no longer picking up incidental items in-store – or wandering to adjacent stores to browse and purchase. This leads to the second problem.
2. We have too many malls. And they're closing.
There are between 1,100 and 1,200 malls in the U.S., and trends suggest that as many as 400 of them will close in the next few years. As I mentioned in another post, Westfield alone plans to close almost 100 of its locations. The article from Reuters offers some insightful perspective:
The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts.
The U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany.
Mall visits declined 50 percent between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they've kept falling every year since.
As a reminder that everything is connected, and that success is a game of collaboration and mutual striving – not a zero sum game – it is imperative to think of a mall as if it were a living organism. When one part of the organism dies, the rest of the body / the community, suffers. If an anchor tenant, like a Macy's or JC Penney's, fails, there are fewer Macy's shoppers to wander to American Eagle, The Limited, and PacSun. The failure of a department store can ultimately shutter an entire mall.
3. Experience is more appealing than stuff
Consumers have less disposable income and are buying less. Stagnating wages and rising health care costs are two of the largest reasons why money is tight. But we're also in a cultural revolution, and people are much less likely to believe that consuming stuff will lead to happiness and lasting satisfaction.
People are far more concerned with where their products come from and who made them, and are also valuing experience over acquisition. Spending time with friends over a meal – and the side benefit of making interesting social media content from that interaction – is far more popular than it was even 3, 4, 5, years ago. According to the Reuters article, "since 2005, sales at food services and drinking places have grown twice as fast as all other retail spending. In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores."
CONCLUSION The author of the Reuters article sums up by reminding us that "one of the mistakes people make when thinking about the future is to think that they are watching the final act of the play. Mobile shopping might be the most transformative force in retail—today." But what comes next will be equally disruptive and unexpected.
50 years ago, the factors influencing the rise in shopping and malls was the building of suburban homes, the construction of freeways, and the invention of credit cards. Logistics and technology are the elements that are evolving and that are changing the habits of the American consumer.