What's Happening To Retail In The U.S.? Could Better Advertising Help?

As a headline in today’s Wall Street Journal declares, “For Some Retailers, Success in Simply Staying Alive.” The lede does it even better: “For some of the country’s weakest retailers, less red is the new black.”

The challenges facing the retail industry today have been well-chronicled. Overall, U.S. retail sales haven’t grown much lately, despite aggressive price-cutting and promotion. What’s going on in the retail industry? Is this just cyclical -- or is some larger secular trend on display here? I’ve chatted with a number of folks over the past year on this issue, and here is some of what I’ve heard:

More folks are shopping online more often. There’s no question that one of the issues impacting physical retail sales is the growth of ecommerce. It’s certainly a factor, but is ecommerce really big enough to be responsible for brick-and-mortar’s slide on its own? According to U.S. Department of Commerce data, while retail e-commerce is growing five times faster than physical retail, it still represents only about 6% of consumer retail.

It’s the economy. The U.S. economy is still bumping along in a sluggish recovery, with significant unemployment. There’s no question this trend is affecting retail spend. Reductions in food stamps programs have had a big impact on retailers like Walmart that serve the broadest swaths of U.S. consumers.

Lower compensation. With more competition for jobs, companies have been able to limit the size of annual raises they have given to their employees. This has hurt their spending power.

Weather. There has been a lot of very cold weather in the U.S. this winter. Home heating costs are setting new record highs. The prolonged drought in California is causing rapid rises in food prices. Every additional dollar spend on necessities is a dollar less spent at the mall.

Retail is overbuilt in the U.S. According to data from The International Council of Shopping Centers, the U.S. had more than 23 square feet of retail space per person in 2012, compared to 14 in Canada, 6.5 in Australia and 1.1 in Italy. We shop a lot here, but probably not at a 20X rate relative to Italy.

Fewer impulse purchases online. I don’t know if there have been many definitive studies in this area, but declared data studies (which as a practice I don’t like, since what people say is quite different than what people do) claim that American consumers make significantly fewer impulse purchases online, relative to such purchases made in physical retail stores.

Teens aren’t driving. Overall, the price of gasoline and less driving overall has certainly had an impact on retail, but trends with teens are making it even more pronounced for shopping centers. According to the AAA, the number of U.S. teenagers with driver’s licenses has dropped significantly, from more than two-thirds of teens two decades ago to less than one-half today. With kids not driving, who’s in the malls?

Shift from Big Box to larger, upgraded convenience & drugstores. We’ve all seen the growth of a next generation of Walgreen’s, CVSs and 7-11s, with more, grocery-like and readymade food products. That means fewer visits to full-service grocery stores and Big Box retailers. Clearly some impact here.

Advertising is not pulling its weight. I don’t think that advertising is delivering for retailers the way it used to. For one, the massive loss of newspaper circulation in the U.S. over the past decade has hampered what used to be a very efficient local retail-marketing channel through both its display ads and free-standing inserts. Second, and maybe worse, the fragmentation in television and the failure of current TV ad systems to keep up at the local level have probably impacted retail traffic and profits. Retailers today are paying more for campaigns that reach a smaller group of people too often, and attempts by marketers and agencies to fix this problem by lowering CPMs is only making it worse. The product needs to be fixed, not just the price.

What do you think? Could better advertising help retailers overcome their current challenges?

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8 comments about "What's Happening To Retail In The U.S.? Could Better Advertising Help?".
  1. Jon Silverman from xAd, Inc , February 28, 2014 at 1:58 p.m.
    Mobile sounds like an easy replacement for lost newspaper circulation;furthermore, it's a medium that consumers have with them and consult all the time. Cheaper too, with better targeting technology. Surprised that the author didn't call out mobile specifically here.
  2. Dave Morgan from Simulmedia , February 28, 2014 at 2:17 p.m.
    Jon, I do think that mobile could or will have an enormous impact on physical retail promotion and sales. We just haven't seen it yet and I don't know if anyone has the model down yet that will deliver it.
  3. Gian Fulgoni from comScore , February 28, 2014 at 3:59 p.m.
    Good article, Dave. I agree with the points you've outlined and would add one more: The Internet has moved pricing power to the consumer. From retailer web sites, to comparison shopping sites, to coupon sites, to search, today's consumer can easily root out the lowest price for any product in a matter of minutes. Great for consumers, tough for retailers.
  4. Doug Garnett from Atomic Direct , February 28, 2014 at 5:06 p.m.
    Good article. (1) And yes, retailers need to do better advertising work. They are lost in cleverness of brand without making clear why consumer should want to shop with them. (2) I disagree on the pricing power to the consumer that Gian suggests. Only a segment of the population are aggressive price shoppers and convenience very quickly overrides price. But I'd add a couple more issues... (3) Retail has spent 20 years driving their own margins down by sourcing cheaper and cheaper goods. It's amazing how low cost some of the items are at retail. But low price also means low margin. And retailers haven't focused on the ways to increase margin...like smarter advertising and product oriented advertising. Also, too much brand skipping by retailers weakens their own offering - meaning even less margin. (4) Silo's. Retail has only recently sorted out the online isn't a separate channel. People want the product - and would like to choose Macy's via store, online, or home delivery---whichever fits their needs at that point in time.
  5. Paula Lynn from Who Else Unlimited , February 28, 2014 at 6:34 p.m.
    You kick it, Dave.
  6. Gian Fulgoni from comScore , March 1, 2014 at 9:52 a.m.
    Hi Doug: I agree with you that only a segment of the population represents aggressive price shoppers, but the reality is that segment is huge. Consider the following. 220 million people visit retailer sites an average of 22 times per month checking prices and product features; 100 million people a month make an average of 3 visits to comparison shopping sites to find lower prices; 100 million people a month make 11 visits to coupon sites to get lower prices. And if none of that works for them then they join the 230 million people a month who conduct an average of 30 search queries. The reality is that pricing is transparent today and for the vast majority of the population any considered purchase (whether online or off) comes with a dramatically better understanding of alternative price points
  7. Dave Morgan from Simulmedia , March 1, 2014 at 9:56 a.m.
    Gian, excellent points about pricing transparency. Clearly, the impact of the Internet and ecommerce on retail goes far beyond the ecommerce sales. The enormous amount of information about products, pricing, service, reliability, etc. has been enormously impactful on physical retail sales.
  8. Pete Austin from Triggered Messaging , March 2, 2014 at 1:54 p.m.
    I thought this was supposed to be about income inequality. E.g, "the customer base for businesses that appeal to the middle class is shrinking" http://www.nytimes.com/2014/02/03/business/the-middle-class-is-steadily-eroding-just-ask-the-business-world.html