What the Hell is Happening to Retail?
Retail is having a moment right now.
Since the calendar flipped to 2017, we’ve seen more bankruptcies than all of last year, including some consumer electronics chains like RadioShack (again) and hhgregg,. Just this week, hhgregg announced it was going a step further, closing all of its remaining stores and liquidating all product.
The doom and gloom news has, of course, extended well beyond the CE industry. Some major stores—J.C. Penny, Macy’s, Payless, Sears, Lululemon, Urban Outfitters, and more—have all announced either store closures or seen their stocks tumble to new lows. Ralph Lauren even announced that it was closing its flagship Polo store on Fifth Avenue in New York.
Mind you, all of this is happening at a time when the economy is very much out of the recession phase, consumer spending and confidence is up, and the economic outlook has been nothing short of rosy.
So, what the hell is going on? Is this the end of retail? Is the apocalypse upon us?
The answer to any of those questions, as you’d expect, isn’t so straightforward.
Yes, this is a very dark time for retail. A lot of things are up in the air. Brick-and-mortar stores are facing some incredibly difficult times. But that doesn’t mean the entire industry is about to go kaput.
The Atlantic recently published a deep dive into the current state of the retail industry, and their explanation couldn’t have been more accurate—it’s probably the closest thing to a complete answer we’ll be able to find. They point to three main causes for the “Retail Meltdown of 2017”:
- The rise of online shopping,
- the existence of faaaaar too many malls,
- and a major shift in how consumers are spending money.
All of those make perfect sense. No industry understands the impact of online shopping better than the consumer electronics space, which has seen billions of dollars in business go to Amazon. Since 2010, the ecommerce giant’s sales in North America have quadrupled from around $16 billion to more than $80 billion last year. And in 2016, Amazon’s growth alone accounted for more than half of all online sales growth.
There’s also the mobile wallet affect. Since 2010, The Atlantic pointed out, mobile shopping has grown from less than 2 percent of digital spending to 20 percent last year.
As for the declining footprint of malls, there are roughly 1,100 in existence today. That’s down from the peak of about 1,500 (all of which were built between 1956 and 2005), so nearly a third have closed in the last decade. Further, while all of those malls have closed, not a single new one has been built.
Whereas malls used to serve as the cornerstone of local communities, the era of expansion resulted in an oversaturation of malls. When you take into account the number of malls and outdoor shopping centers throughout the U.S.—which brings the total up to more than 7,500—and break it down by “gross leasable area,” as one research firm did, the U.S. far outpaces the rest of the world.
Lastly, The Atlantic hit on consumer spending trends. Here, they note that Americans have shifted from a materialistic mindset to one where we’d rather spend money on going out with friends for food and drinks. A fair point.
A Shifting Retail Paradigm
The message in all of this is really geared towards the larger national retail chains. The downturn in physical retail square footage goes to show that, in the era of omnichannel retail, there’s no need to expand your brick-and-mortar footprint in order to boost sales. Rather than needing more locations, companies need a stronger ecommerce strategy. Easier typed out by a blogger than implemented by a retailer.
But what about the smaller stores?
If anything, all of the mall closures are positive for the specialty guys out there. With less competition in those local markets, consumers who still prefer to shop in person are more likely to turn to you.
But that doesn’t mean you can continue to operate as you always have. Just like we wrote about in our analysis of Staple’s new strategy to drive foot traffic, local shops need to continue to drive home in consumers’ minds why their stores matter. You have to find that personal touch, something that separates you from the national chain, and can entice consumers to come walk through your showroom. It doesn’t have to be a coworking space. Maybe it’s free delivery if they live within so many miles, or same-day installation for orders over a certain price threshold. Heck, maybe it’s even just outstanding personal service from your sales floor team.
Retail isn’t going anywhere. There’s always going to be a need for a physical place where people can come in and experience a product. The only difference today is that consumers need a little more enticing to get out from behind their computers. The onus is on the retailer to prove their worth in their communities. If you can do that, the “Retail Meltdown of 2017” will mean absolutely nothing to you.