Retail's Struggles Retail's Struggles
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Issue: Retail’s Struggles Retail’s Struggles By: Sharon O’Malley Pub. Date: August 7, 2017 Access Date: October 2, 2021 DOI: 10.1177/237455680323.n1 Source URL: http://businessresearcher.sagepub.com/sbr-1863-103735-2827464/20170807/retails-struggles ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Can traditional stores survive the online onslaught? Executive Summary U.S. retailing, an industry that employs one in 10 American workers, is experiencing a profound disruption. A combination of technological change, massive overbuilding and a seismic shift in how consumers shop has created what one business writer called “the retail meltdown of 2017.” The relentless growth of Amazon and other e-commerce sites has taken a huge toll on traditional outlets: Since the start of the year, 2,800 stores have gone under, taking 55,000 jobs with them, and retail bankruptcies are up 31 percent. The stores filing for bankruptcy protection include well-known brands such as RadioShack and The Limited, and even bigger names – Sears, J.C. Penney and Macy’s – are struggling to stay afloat. The outlets that are surviving, such as Apple and Home Depot, are emulating Amazon by embracing technological innovation rather than resisting it, industry analysts say. Among the key takeaways: Although e-commerce accounted for less than 12 percent of all retail revenue last year, it grew more than 15 percent, while overall retail revenue rose by less than 4 percent. In addition to shopping online more, U.S. consumers are spending less on clothes and more on food and travel. The decline in retail employment will likely hit women and lower-income workers especially hard, because they hold a large percentage of the most threatened jobs. Overview Even as traditional retailers are closing stores, Amazon is opening new warehouses, such as this million-square-foot facility in Fall River, Mass. (John Tlumacki/The Boston Globe via Getty Images) At the LA Fitness gym in Bowie, Md., on July 10, a group of middle-aged women lingered after their 7 p.m. weightlifting class to compare notes. Still red-faced and sweat-drenched, they were not bragging about how many biceps curls they had managed or how much weight they had pressed. They did not complain about how hard the instructor, who joined them for this post-workout debrief, had pushed them. Instead, each one rattled off the list of items she would purchase on Amazon.com when she got home: workout gear; sneakers; Amazon’s smart speaker, Echo; makeup; toner cartridges; lightbulbs. “I have a whole list in my car,” school secretary Jeri Darcy told her gym pals. “I don’t need any of it. But I know I’ll need it later.” Like a Black Friday bargain-hunter who pushes her way into Walmart at 6 a.m., Darcy said she planned to be at her computer by 10 p.m. to take advantage of the first minutes of the e-commerce behemoth’s third annual Amazon Prime Day. The 30-hour sale, Amazon promised, would slash prices on 100,000 items, some by as much as half. Analysts predicted the 22-year-old online shopping pioneer would rake in more than the $500 million-plus it reaped during last year’s Prime Day, which was its biggest sales day ever, and they were not wrong. 1 The sale took in 60 percent more than last year’s event, Amazon reported, surpassing the retailer’s take on Black Friday and Cyber Monday. 2 Amazon’s total sales revenue for 2016, at $136 billion, was still less than a third of the $485.1 billion that the world’s biggest retailer, Walmart, took in. 3 And yet the trend lines were unmistakable; while Walmart sales grew by just 0.6 percent year over year, Amazon’s soared by 27 percent. The same is true for overall e-commerce sales versus that of physical stores: At $394.9 billion nationwide, online 4 Page 2 of 23 Retail’s Struggles SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. sales accounted for just 11.7 percent of total retail revenues in 2016, but enjoyed a 15.6 percent growth spurt from the prior year. 4 Revenues for all retail – not counting cars, fuel, restaurant meals and bar tabs, which generally are not available for online purchase – totaled $3.37 trillion in 2016, just 3.9 percent more than in 2015. 5 The divide between online versus in-store sales has created what some analysts, economists and journalists are referring to as “a tipping point” for retail, as the players most heavily invested in brick-and-mortar locations struggle to support their infrastructure in an era of dwindling foot traffic and fewer in-person transactions. This trend is playing out in an industry with a workforce of about 16 million people, making it the third-largest source of jobs in the United States, behind only education and health services, which employ 22.7 million Americans, and professional and business services, with 20.3 million workers, according to a May report from advisory firm Cornerstone Capital Group. 6 There is no doubt that online shopping, giving consumers the convenience of ordering products from a Web-based seller for quick home delivery, often at a discount, has disrupted the retail tradition. But Web-based businesses and physical retailers’ own online stores did not do that on their own. A trifecta of technology, a massive overbuilding in the retail space and a sea change in consumer shopping behavior that began during the 2007-09 recession has reached its boiling point. That became obvious during the first six months of 2017. Since January, more than 2,800 stores have been shuttered – more than during the recession, taking with them more than 55,000 jobs. 7 The financial services firm Credit Suisse has predicted store closings could total 8,600 by year’s end. 8 More than 300 retailers, including some with household names such as RadioShack, The Limited and Gymboree, have filed for bankruptcy protection this year, up 31 percent from this time last year, according to BankruptcyData, which tracks corporate bankruptcies. 9 Nearly two dozen once-popular and specialty retailers – Nine West, Claire’s and David’s Bridal, for example – are in distress and could be next, according to Moody’s Investors Services. 10 Department stores whose names are synonymous with U.S. commerce, such as Sears, J.C. Penney and Macy’s, are struggling. In March, Sears reported its “substantial doubt” about the company’s chances for survival – and in July announced that it would begin selling its mainstay Kenmore line of appliances on Amazon. 11 A month earlier, J.C. Penney said it would close 138 stores by summer. 12 Macy’s will be dropping 68 locations. 13 And, the Credit Suisse report predicted, up to 25 percent of U.S. shopping malls may close within five years. 14 Economists and analysts agree on three core causes: The relentless growth of e-commerce. “Retailers thought the consumers were going to continue to shop in a traditional manner,” says Sam Cinquegrani, founder and CEO of ObjectWave Corp., a digital marketing technology and services company. “So they put everything into one big box where [shoppers] can find everything they need. They weren’t counting on Amazon.” Former J.Crew Chairman and CEO Mickey Drexler put a painfully fine point on that when he acknowledged in June, as he left the struggling company, that he misjudged how quickly technology would change retailing. “I’ve never seen the speed of change as it is today,” he told The Wall Street Journal. “If I could go back 10 years, I might have done some things earlier.” 15 In short, shoppers are simply making more online purchases than they used to. Shopping online got easier, thanks to apps and mobile wallets, and cheaper, thanks to pressure by Amazon’s discounted prices on other online merchants. Page 3 of 23 Retail’s Struggles SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. RadioShack has filed for bankruptcy protection and is closing hundreds of stores, including this one in New York City. (Drew Angerer/Getty Images) Substantial changes in shopping and spending behavior. Consumer spending reached its highest level in five months in April. 16 But shoppers are not spending their money in traditional department stores. In fact, Americans are buying 20 percent fewer clothes and have shifted their spending to restaurants, airlines and hotels. 17 “It’s the old retail model that’s under pressure and not consumers’ willingness to spend money to buy goods and services,” says Greg Portell, lead partner for global management consultant A.T. Kearney’s consumer products and retail practice in the Americas. “The way consumers shop and what their expectations are is certainly changing.” Young shoppers have shifted their spending to experiences rather than outfits. In shopping malls, food, entertainment and gyms are faring better than department stores. 18 In 2005, 3.6 percent of total retail sales were made by department stores, compared with less than 2 percent today. 19 A glut of malls, stores and stuff. Retail is, as industry insiders put it, “over-stored.” 20 The United States has more retail square footage per capita than any other country – more than six times that of Europe or Japan – and that is too much, analysts have said. 21 “That’s why we’re going to close tens of thousands more stores, we’re going to close malls,” says Manhattan-based retail consultant Howard Davidowitz. But square footage is not the only problem.