Dean Barber

Our Big Fat Retail Meltdown

In Corporate Site Selection and Economic Development on April 23, 2017 at 9:08 am

About four miles from my home, demolition has begun on the very big Valley View Mall in North Dallas. And I think my wife and I are partly responsible in that we never went there.

But not a week goes by that we don’t receive multiple packages delivered to our doorstep via Amazon. Indeed, I think of my wife as the Amazon Queen, and I am her vassal.

Speick Natural Soap Bar 3.5 Ounces (Pack of 3) arrived on Friday. This German product “LEAVES YOU FEELING INVIGORATED AND REFRESHED, making it an ideal addition to your morning shower routine.” Boy howdy, I can’t wait.

Also on Friday, Bebe Stores, which models itself as a purveyor of “unique, sophisticated and timelessly sexy” clothing for women, said it plans to close its remaining 168 stores in the United States and Canada by the end of May, according to a regulatory filing.

The Latest Casualties

Bebe is the latest brick-and-mortar casualty in what some observers are starting to call a “retail apocalypse.”

Payless ShoeSource, hhgregg, The Limited, RadioShack, BCBG, Wet Seal, Gormans, Eastern Outfitters, and Gander Mountain are among the retailers that have filed for bankruptcy so far this year, and most are closing hundreds of stores as a result.

Retailers that once ruled the shopping mall roost, like Macy’s, JCPenney and Sears, while staying in business for now, are closing hundreds of stores and cutting thousands of jobs.

More than 3,500 stores are expected to close over the next several months.

The Great Disrupter

Amazon, the behemoth of online retail, is the big winner of this retail meltdown. It has been systematically dismantling retail and thereby reinventing it. In doing so, Amazon is becoming a primary shopping search engine for consumers, with 55 percent of searches beginning on the site.

That in turn could lead to continued growth in the company’s ad business, which NYU Stern School of Business professor Scott Galloway told CNBC would “put them in the league of Facebook and Google.”

“Amazon is becoming all of retail,” said Galloway, making it “the most disruptive company in the largest economy in the world.” Eventually, people will only shop at Amazon, he said.

Something’s Happening Here

Now that might be an overstatement by the good professor. I happen to believe there will always be a place for stores. But what is clear is that something very big and structural is happening to retail.

Overall retail spending is not appreciably down, so why the demise of storefronts? There are multiple trends happening, all of which are changing the face of American shopping.

The rise of e-commerce is certainly one reason, but so, too, is the oversaturation of retail space in the U.S. (there’s just way too much built out retail space), and a restaurant renaissance, which is where young people want to spend their money. I will briefly touch on all three.

Online Buying

Easy return policies have made online shopping cheap, easy, and risk-free for the Amazon Queen in my home. And this is particularly true when it comes to her purchases of apparel, which is now the largest e-commerce category.

What’s more, mobile shopping is getting easier because of apps and mobile wallets. Since 2010, mobile commerce has grown from 2 percent of digital spending to 20 percent.

People used to make several trips to a store before buying an expensive item like a couch. Now they sit on the couch to make their purchases.

Too Much Retail Space

In a conference call with analysts last month, Urban Outfitters Chief Executive Officer Richard Hayne said there are simply too many stores.

“The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel,” he said. “Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce.”

Too much square footage was added in the 1990s and early 2000s, with thousands of stores opening, he said.

“This created a bubble, and like housing, that bubble has now burst,” he said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

There are about 1,200 malls in U.S. today. Some analysts say that number will shrink to 900 a decade from now. Mall visits declined 50 percent between 2010 and 2013, according to Cushman and Wakefield, and the numbers keep falling.

Less Stuff, More Meals Out

In our zeal to downsize and simplify, my wife and I recently gave a local auction house a lot of furniture and 48 boxes of books to be sold. Even if she is the Amazon Queen, we don’t buy nearly as much stuff as we used to. Materialism is not high on our agenda.

But we do like to eat out, and we do enjoy travel.

We are not so unique in that regard. Consumers have shifted their spending away from clothes (it has declined 20 percent since 2000) toward travel and dining out.

Travel is booming. Despite treating its customers like livestock, U.S. airlines last year set a record, with 823 million passengers. But the rise of restaurants has been even more dramatic.

Since 2005, sales at “food services and drinking places” have grown twice as fast as all other retail spending. With more options, shoppers are eating out at restaurants and bars, ordering in on their phones or snagging groceries at convenience stores.

In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.

In essence, what these all these trends show is that our behavior as shoppers is fundamentally changing. Some retailers, particularly those with large fleets of brick-and-mortar stores, will not be able to adapt and survive in the new retail environment.

A Slow-Rolling Crisis

Since October, about 89,000 workers in general merchandise stores have lost their jobs, which is more than the number of people employed in the entire US coal industry, The New York Times reported.

The effects of these job losses will hit some local economies hard, according to Mark Cohen, the director of retail studies at Columbia Business School.

“This is creating a slow-rolling crisis,” Cohen told Business Insider. “The people that work in retail stores will lose their jobs, then spend less money in retail stores because they are no longer employed. That creates a cascade of economic challenges.”

Like coal miners, retail workers don’t typically have a set of skills that’s easily transferable to another industry, according to Cohen.

The retail industry typically pays low wages and employs about one out of every 10 American workers. It provides employment to people in every age bracket, as well as those who are relatively low-skilled.

The Economic Development Angle

I have run across many communities that have an economic development retail strategy. I don’t necessarily fault that, especially when it comes to creating a vibrancy on Main Street downtown. You want that. You don’t want a boarded up Main Street.

But when you place too much emphasis on retail, and this is particularly true in the suburban areas, you might be setting yourself up for a fall. Better to think mixed use.

I know of suburban communities here in the Dallas-Fort Worth Metroplex that see retail to the exclusion of everything else as The Golden Goose to funding local government via sales tax dollars. With the structural changes now taking place, they may want to rethink that.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com.

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