Retailers Crash While The Economy Prospers

With stores closing at a record pace, says Elisabeth Fosen, considering L2’s Digital IQ Index: Specialty Retail, the first half of 2017 saw more retail store closures than all of 2016. Fosen notes that, In the middle of an economic recovery, hundreds of shops and malls are shuttering. The reasons why go far beyond Amazon.

However, in a coincidental article from Derek Thompson for The Atlantic, noting that from rural strip-malls to Manhattan’s avenues, it has been a disastrous two years for retail. There have been nine retail bankruptcies in 2017, as many as all of 2016, says the article.

A deep recession might explain an extinction-level event for large retailers, says the Derek articls, but GDP has been growing for eight straight years, gas prices are low, unemployment is under 5%, and the last 18 months have been quietly excellent years for wage growth, particularly for middle and lower income Americans.

The reality is that overall retail spending continues to grow steadily, but several trends, including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance, have conspired to change the face of American shopping.

There are about 1,200 malls in America today. The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure “shopping center gross leasable area,” the U.S. has 40% more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany. Mall visits declined 50% between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they've kept falling every year since

Even if e-commerce and overbuilt shopping space conspired to force thousands of retail store closings, why is this meltdown happening while wages for low-income workers are rising faster than any time since the 1990s, asks the report.

First, although rising wages are obviously great for workers and the overall economy, they can be difficult for low-margin companies that rely on cheap labor like retail stores. Cashiers and retail salespeople are the two largest job categories in the country, with more than 8 million workers between them, and the median income for both occupations is less than $25,000 a year. But recently, new minimum-wage laws and a tight labor market have pushed up wages for the poorest workers, squeezing retailers who are already under pressure from Amazon.

Second, clothing stores have declined as consumers shifted their spending away from clothes toward traveling and dining out. Before the Great Recession, people bought a lot of things, like homes, furniture, cars, and clothes, as retail grew dramatically in the 1990s. But spending on clothes is down; its share of total consumer spending has declined by 20% this century.

Hotel occupancy is booming. Domestic airlines have flown more passengers each year since 2010, and last year U.S. airlines set a record, with 823 million passengers. The rise of restaurants is even more dramatic. Since 2005, sales at “food services and drinking places” have grown twice as fast as all other retail spending. In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.

There is no question that the most significant trend affecting brick-and-mortar stores is the relentless march of Amazon and other online retail companies. But the recent meltdown for retail brands is equally about the legacy of the Great Recession, which punished logo-driven brands, put a premium on experiences (particularly those that translate into social media moments), and unleashed a surprising golden age for restaurants, concludes the report.

And, Fosen proposes that retailers must look to digital in order to remain relevant.

For additional information from the Atlantic article, please go here



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