US Retail Store Closings-A Good Death

 US Retail Store Closings-A Good Death

Original Publication Date: 7/22/2018-Picture from 1/5/2017

 

 

Almost daily reports of retail store closings, bankruptcies, and shopping malls becoming ghosts of times past is being greeted with alarm or deep concern for the fate of brick and mortar. Ecommerce, and especially Amazon, is almost always blamed.

 

It is true and logical that the growth of ecommerce has siphoned sales from traditional retail; further, the growth of mobile shopping makes it even easier to buy without the trip. 20% of ecommerce sales today are estimated to originate from mobile devices. Ecommerce is a gift of technology.

 

That being said, below I will take the position that 1. Ecommerce is only a small part of the reason for the shuttering of thousands of stores and closing of malls; that 2. There were too many malls in the first place and the shakeup is a good and warranted culling of the herd which will be healthy for traditional retail in the long run; and that 3. Some of the stores that have closed entirely either lost their relevance or failed to compete in a changing world-ecommerce is the catalyst for this, not the reason.

 

Let’s look at a partial list of the casualties:

1.     Traditional department stores- Macy’s, Sears, Kmart, JC Penney- closing stores by the hundreds if not thousands before we are done.

2.     Specialty Stores- Limited, Wet Seal, Aeropostale, Radio Shack (truthfully, I thought they were gone a while ago). They either failed to update or change with the times, to offer an attractive and competitive product to their customers, or just lost their Mojo

3.     Brands sinking into the sunset- Ralph Lauren just closed their flagship store on 5^th Avenue in New York. Why? As the fast fashion specialty chains seek more and more locations in good urban locations, Ralph Lauren closes. Can only be the brand has lost its mojo. At one time it was a status symbol to wear a Polo polo; now, it makes you look almost embarrassingly antiquated.

 

At the same time, fast fashion retailers like Inditex/Zara and Fast Retailing/Uniqlo are both closing and opening stores. They are all closing stores in malls where the anchor store and the mall itself is failing, and opening in urban areas where the traffic and relevance is enhanced and their success depends entirely on their product. During the first quarter of 2017, Inditex opened 71 new stores in 31 markets giving them a total of 7,085 stores for all brands.

 

Please make a note above of the 31 markets. Sad to say that the retail brands that are becoming ubiquitous in US traditional retail are not American brands: Inditex-Spain; Uniqlo-Japan; H&M-Germany; Aldi- Germany; Primark-UK. What they have in common is a comprehensive knowledge of global retailing and the ability to customize their offerings to many markets. No monolithic product arrogance here. This has been the failure of many a traditional retailer- for example, Marks & Spencer recently closed all their stores in China after many years (wait-China? The fastest growing economy in the world?). The main reason is that their product was not managed to suit the market (just my opinion, but it also looked dated and sometimes just plain ugly). I am sure you would have found most or all of it in their stores in UK. That doesn’t work in global retailing-while some product is relevant to multiple markets, most or all of it will never be.

 

But what about shopping malls? Once an anchor store in a mall closes, that mall’s days are probably numbered.  And why are so many shopping malls becoming ghosts or discount centers? Certainly all three reasons given above related to the store or product are part of the story, but the main part of the story is that there are too many shopping malls in the first place.

 

Between 1970 and 2015, the number of shopping malls grew twice as fast as the population. Now the US finds itself with 23.5 square feet of GLA (Gross Leasable Area) per capita! This means you can go into any shopping mall, carve out a 20’x20’ space, and claim it as your share of US Mall Retailing.  And so could the rest of our 321million population.

 

How did this happen? Can’t prove it, but my answer is that the growth of more and more shopping malls, double what was needed based on the population was based on Gordon Gecko’s virtue-Greed. This was a real estate boom and hugely profitable, with no concern or control over the overabundance and concentration of stores. IF a new mall opened, everyone had to be in there, even if it was a stone’s throw from another shopping area with exactly or virtually the same offerings.

 

So don’t blame ecommerce for closing these stores- say Thank You. The economy will be better off for this adjustment, and hopefully those displaced will get new jobs downtown.

 

What about ecommerce? It must be eating so many sales that it is directly causing the retail failures, right? Especially Amazon, right? Wrong. First, if someone is buying clothing on Amazon rather than at Wet Seal (maybe not the same someone), is that Amazon’s fault or Wet Seal’s? You know the answer.

 

But, in general, while ecommerce is growing strongly and steadily, it is not growing as massively as we generally imagine, nor is it yet making enough of a dent in traditional retail so as to cause economic disruption. Here are the facts, courtesy of the US Department of Commerce : In the first quarter of 2017, Ecommerce total sales were $105.7 billion, a growth rate of  4.1% from the 4^th quarter of 2016. Traditional retail sales were $1,250 billion and increased 1% from the previous quarter (a much more mature sector). So the share of total retail for ecommerce is still only 8.5% of adjusted total. Or, conversely, traditional retail still holds 91.5% share of market.

 

Now here’s the most amazing part. Everyone has a web site these days, but of the $105.7 billion, Amazon’s first quarter 2017 (global) sales were reported at $35.71 billion. Revenue grew from $29.1 billion the previous year. If not for Amazon, ecommerce share of market would be truly wimpy. So ecommerce is not growing handily-Amazon is. So Amazon is the main reason ecommerce is growing so rapidly, but it is not  the main reason traditional retailers are closing stores.

 

Retail spending continues to grow steadily. A growing portion is going to dining, entertaining, and resort areas. Apparel is either not growing or declining. So what does that tell you? It tells me clothes just aren’t interesting enough.

 

As far as I know, nobody is complaining that there are not enough Macy’s or Sears or Kmarts to go to now. This is because-there are still plenty-if not too many-of them left.

 

I would suggest to these retailers that they start thinking about their store presentation, merchandise assortments, and general relevance to what the public wants (this starts with buyers who are merchants and can find this relevance-not with spreadsheet keepers).

 

There are about 1250 shopping malls in the US, predicted to shrink to 900. Given the fact that there seem to be twice as many as needed, this culling of the herd is not a sign of apocalypse, but a needed adjustment-a good death.