How to Survive and Thrive Amid the 'Retail Apocalypse'
Retailers faced a hostile landscape in 2017. More than 25 large chains with liabilities of at least $50 million filed for bankruptcy, and nearly 7,000 stores closed. In Iowa, 16 Younkers department stores ended operations in August, following the bankruptcy of its parent company, The Bon-Ton Stores Inc., and sale to a liquidation group.
With these local closures, an estimated 890,000 square feet of big-box retail will become available, accelerating a trend that started with the shutdown of Kmart and Sports Authority in Greater Des Moines (DSM). Toys R Us and Babies R Us have also gone dark.
Learn more about “The Future of Retail” on Wednesday, Sept. 5, 2018.
Understanding the retail landscape
While these events are sobering, media coverage has bordered on hysteria. Headlines warn of a coming “retail apocalypse” in which Amazon.com eventually wipes out the brick-and-mortar landscape as we know it.
The reality is far more nuanced. About 90 percent of purchases are still made at physical stores. Last year, the net number of brick-and-mortar stores grew by 4,000 for chains with 50 or more units. Stores based on a “treasure-hunt” model, such as Marshalls, TJ Maxx, HomeGoods and Ross Stores, continue a wave of expansion. Incidentally, Ross is replacing the Sports Authority in the mall at 4100 University Avenue in West Des Moines. Meanwhile, online retailers such as Warby Parker (eye glasses), Everlane (clothing and accessories) and Casper (mattresses) are developing a physical presence to cement customer relationships. Warby Parker will end 2018 with 100 stores.
In addition, corporate profits are healthy, with 73 percent of companies in the Thomson Reuters Retail/Restaurant Index beating analysts’ earnings estimates in the most recent quarter. As consumers prioritize experiences and convenience, eating out is booming: Americans spent more at bars and restaurants than grocery stores for the first time ever in 2016.
An evolving industry
The truth is, retail has constantly evolved and innovated since the markets of ancient times. The receipt was invented in Mesopotamia in 3,000 BCE. The Chinese employed branding in packaging as early as 200 BCE, using family and place names to signal product quality. Trajan’s Forum in Rome, dating from 110 CE, established permanent retail storefronts. In the 1880s, Sears disrupted the retail ecosystem with the launch of the first mail-order catalog. The downtown department store, indoor suburban malls, big-box category killers — every era has seen disruptive innovation and myopic retailers who cling to old habits and ultimately fail. The 21st century is no different: Smart companies that embrace changing service models and technologies are succeeding.
Thrive amid the disruption
For real estate owners and investors, it’s crucial to identify retail models that are thriving amid the disruption. They include:
- Staples and convenience: Retail centers anchored by grocery and drug stores continue to do well, as time-starved consumers seek speed and convenience.
- Health and fitness: Medical services, gyms, yoga studios and related businesses are gaining steam amid a trend toward healthy lifestyles.
- Experiential: Consumers are flocking to restaurants, entertainment, “treasure hunt” retailers and high-tech, high-touch service.
Technology will unequivocally alter the competitive landscape in the future. Ecommerce will comprise one-third of total retail sales by 2030. Transactions will go cashless. Stores with IT infrastructure and personalized, real-time data will recognize customers when they walk in the door and communicate directly with them (maybe prompting them not to forget the eggs). Augmented reality (AR) will allow shoppers to immediately visualize how a piece of furniture looks in their living room. Autonomous vehicles will fetch and deliver goods, leading to huge changes in the footprint of store parking lots.
Yes, Amazon is massive. It sells more than 500 million products and accounts for 40 cents of every dollar spent online. Amazon is growing more influential by the day, especially with its $13.7 billion acquisition of Whole Foods and its nascent healthcare venture. But people still want to see, touch, feel and smell the goods. They want to get advice from someone they trust. Retail centers may evolve into destinations for self-expression, entertainment and education. They’ll connect people who share certain values, interests, ideas or life stages. With infinite options online, physical retail space — and the motivations that drive people to malls and stores — will be utterly transformed.
But that’s not what you’d call an apocalypse.
Laura Rowley, an award-winning journalist, author and media executive and owner of a business consulting firm, will present on trends shaping the retail industry on Wednesday, Sept. 5, 2018. Learn more about “The Future of Retail.”