The following article has been written by Greg Petro and featured in Forbes Magazine.
Hardly a day passes without some headline somewhere declaring that the retail industry is falling apart, along with a Chernobyl-like stock picture of a vine-choked escalator. Venerable brands are turning out the lights for the last time in thousands of stores. Hundreds of thousands have been put out of work. Online shopping is eating physical retail’s lunch, with no end in sight.
All wrong—or at least a distorted notion.
For starters, the idea that there’s some sort of crash taking place in the retail industry is factually inaccurate. Ask a landlord.
“Since the end of 2010, in the aftermath of the Great Recession, for eight years straight more new stores have opened in the US than have closed,” says Adam W. Ifshin, founder and CEO of Elmsford, New York-based DLC Management Corp. DLC owns and/or operates 325 shopping center and other retail assets.
Ifshin, who is also a member of the executive board of the International Council of Shopping Centers (ICSC), said that the apocalypse meme grew out of misinformed and sloppy news coverage, like this recent headline on the website BusinessInsider: “More than 6,200 stores are closing in 2019 as the retail apocalypse drags on.” Or this in The Wall Street Journal earlier this month: “The Mall Meltdown Continues.”
Business must be bad, right? Not so. Preliminary estimates show retail industry sales rose a healthy 4.6 percent last year, and are forecast to grow almost as much this year, according to the National Retail Federation. That’s some apocalypse—more stores and more sales.
Yes, it’s a headline when firms like Nine West and Sears—having ignored the changing metrics of their markets and squandered their brands’ equity—go bankrupt. But the death of a brand is not an apocalypse. It’s just proof that capitalism is, in fact, the “gale of creative destruction” described by economists in the 1950s. Adapt or die.
And what about that pile of Amazon (NYSE: AMZN) boxes that greets you on your porch every night when you get home from work? E-retail is killing physical retail, right? Wrong again.
Ecommerce is growing faster than physical retail right now, but analysts estimate the channel still only represents just under 15 percent of total retail sales. The impact has been varied. Amazon helped wipe out just about all of America’s bookstores, but its impact in other categories has been less dramatic. Also, traditional retailers like Walmart (NYSE: WMT) are starting to catch up to online-only companies, learning how to integrate the channels to their advantage—shop online, pick up in store.
Whether or not ecommerce continues to grow at the current rate of about 17 percent a year, there is evidence that there may be a ceiling. A recent survey by ICSC of 9,000 consumers found that slightly more than half of online shoppers said a nearby physical store is “important when buying online.” Another ICSC survey found that the newest customer cohort, Gen Z, believes by three-to-one that physical stores provide a better shopping experience, and 71 percent of consumers under 30 years old said they shop for clothing mostly in stores.
From his perch as a landlord, DLC’s Ifshin sees the trend in physical retail reflecting a generational shift. “Millennials are into experiences,” he says. “Clicking a mouse on Amazon is not an experience. So, we’re seeing a lot of activity with new tenants like fitness centers locating in shopping centers.”
Ifshin identified another category that he considers a reliable trend—hospitals that want to redirect non-emergency visits and services are off-siting more than just urgent care facilities. “One of our tenants, Hartford Health System in Connecticut, has opened a facility in a mall where they are doing x-rays and other radiological tests, minor procedures, offering pediatric services, and so on.”
The mall of the future may be where Millennials go to the gym, where they get their checkups and medical testing, and where they go to look at the clothing they’re interested in after shopping online, a potential solution to the returns problem. In some categories, like women’s shoes, the return rate at some online retailers ranges from about 25 percent to as high as 50 percent. That may in part explain why a 2018 report from research firm JLL found that ecommerce retailers plan to open 850 physical stores in the next five years.
Ifshin predicts that the Amazon model—razor-thin margins on retail sales subsidized by the company’s hugely profitable cloud computing services—is unsustainable. “It reminds me of the airline industry in the 1980s when carriers like People Express disrupted the market by selling tickets below cost. People got used to cheap airfares and a lot of carriers ended up going bankrupt.”
He predicts that the evolving renaissance in physical retail will be fueled by younger generations of consumers who like to shop online but prefer to buy in-store. “Ship-to-store,” he says, “will one day kill Amazon.” Unless, of course, Amazon decides to build out a physical retail presence. The company’s recent decision to partner with Kohl’s(NYSE: KSS) to handle returns in-store may be the first step in that shift. The surviving brands, wholesalers, and retailers will be those which know and listen to their customers rather than scary headlines.
Either way, the outcome is unlikely to be apocalyptic.
Source: Forbes Magazine
