A Closer Look Into the Retail Apocalypse
While the term started to gain traction merely two years ago, the early beginnings of this emerging problem that has been plaguing North American retailers can be traced as far back as 2009.
Back then, borrowing money was much easier for large businesses due to low-interest rates. This left many large retail brands to borrow and expand their department stores on an excessive level. Between 1970 and 2015, the US saw a huge over-supply of malls, reaching twice the growth rate of the entire population.
Such actions are no surprise as to why there are so many ‘dead malls’ all across the nation. In fact, the US was reported to have about 40% more shopping space per capita than Canada.
Furthermore, while prior to the Great Recession, many consumers bought furniture, clothing, and cars, after its hit, spending in these areas declined by 20 percent. What changed instead was a rapid growth in travel and food consumption, with airlines having carried 823 million passengers in 2016, a noteworthy record in the US.
The rise in food and services has undoubtedly played a major part in the consumption patterns of US consumers. One major influence of this has been social media, where young people have become more concerned with displaying their ‘experiences’ to their friends. From photos of a beautiful, glowing sunset by the beach to a well-decorated, delicious meal, the behaviors of the new generation and their interaction with technology explains the primary reasons for why the retail world has been on the decline.
The Rise and Prevalence of Online Shopping
One of the biggest reasons why retail apocalypse has been affecting so many retailers is the rise of the Internet and online shopping. From food, groceries, to household goods, there is no denying that the way we purchase and consume has dramatically transformed since the emergence of the Internet. Besides the simplicity of it all, online shopping provides:
- Speed and convenience – With just a few clicks, we are able to place our order into a cart and send it off to our address. No long line ups, no bargaining, no hassles. Moreover, these days, online shopping titans such as Amazon offer speedier deliveries, going as far as shipping the item within a day. In a world where we are looking for instant gratification, the fact that we can do our shopping in the comfort of our home or inside is too alluring to be true.
- Limitless choices – Unlike going to the department store, where we would have to spend several hours looking through the inventory of every store, online shopping allows us to scroll (or swipe) through a limitless amount of choices. From colors, sizes, and styles, there is so much for us to choose from, and that is probably one of the biggest reasons why people love shopping online.
- Social proof – Often times, whether a small e-commerce shop or big titan like Amazon, shopping online shows reviews of the product we are interested in buying. This allows us to read through what others think about the item and gives us the ability to figure out whether it’s actually worth the buy or not.
- Better prices – There are many plug-ins these days (Honey for Google Chrome to name one) that help find coupons and discount codes for items online. Due to these sort of technologies, buying online seems to be the more affordable option, especially considering we save money on gas (since we do not have to leave our home) and other expenses involved with going out.
- More information – One of the greatest perks of doing anything online is the fact that we have an entire world of information to read and learn from at our fingertips. From Wikipedia to Google searches, online shopping offers us the luxury of learning more about the product we are interested in buying, searching up reviews and clarifying any doubts we had – which may prevent buyer’s remorse.
A report issued by GFK Global noted that one of the most important factors that made shoppers purchase online was saving money.
According to the study that surveyed 23,000 shoppers, 55% stated that saving money and taking note of better prices is what led them to purchase online. Unsurprisingly, 28% stated that shopping was simply easier, and 26% believed that they had a better selection.
It is no surprise that, with the way the Internet has engulfed every facet of life, people do are spending far less time going out in general.
When looking at the data (figure above), Internet retail has risen substantially in comparison to department stores, which have dipped across the span of 20 years. According to the U.S. Census Bureau, three years ago (2016), department stores revenue reached about $12.7 billion USD, approximately $30 billion USD lower than Internet retail.
Unsurprisingly, the majority of online consumers tend to be younger, with 67% of Millenials preferring to search and purchase from e-commerce websites. A little bit more than half of Generation X (56%) prefer to shop online, and 41% of Baby Boomers.
According to Statista, the figure above demonstrates the online shopping preference in the United States since 2017. The number for each generation will have undoubtedly increased since then.
Affected Retailers Across the Board
Big name fashion brands and retailers we’ve all grown up with since the ’90s have begun to take the hit. With major cutbacks and closures all across North America, the retailers listed below are just some of the big names that have been severely affected by the onslaught of the ‘retail apocalypse.’
- Sears – One of the biggest retailers in the US and one that shocked most consumers/fellow retailers across the board, Sears had closed more than 100 stores over the years. Although it has been around for 125 years, it has continued to show a decline since the 2000s, and in September 2017 filed for bankruptcy.
- Toys R Us – Once seen as a mega-retailer in the US, Toys R Us filed for bankruptcy in 2017, unable to compete to the likes of Amazon and modern innovative shopping.
- Gap – In 2019, the famous clothing brand announced that it would be closing 230 stores over the next two years due to the fall in sales.
- Abercrombie & Fitch – In March of 2019 (just last month), it stated that it would close as many as 40 stores.
- Aerosoles – Filing for bankruptcy in 2017, Aerosoles, the famous New Jersey-based women’s footwear company stated that it would have a significant reduction for all its retail stores.
- Foot Locker – With decreasing earnings in the fourth quarter of 2018, the shoe retailer announced that it would close 165 stores in 2019.
- JC Penney – Back in 2017, it closed around 138 stores and attempted to restructure its entire business. However, in 2019, it announced that it will close 24 more stores.
- Payless – Having filed for bankruptcy two times in one year, the discount shoe retailer announced it would close 2,300 stores in the US.
The retailers listed above are just a few of the countless brands that have announced the closure of their stores. From filing bankruptcy to closing most of the stores spread across the nation, the retail apocalypse has definitely done a number on many retailers.
The Death of Retail is Not Completely Near
Although many retailers across America and the world at large have been affected by the sweeping hand of the retail apocalypse, it does not indicate the complete eradication of offline stores.
Although 2019 continued to see over 5000 stores announcing closure already, this does not mean an absolute end for all traditional retailers.
Interestingly enough, although online shopping has definitely influenced the market, US economic conditions do play a factor in American consumer behaviors much more than many think.
According to Deloitte, they found that “low-income consumers were 44% more likely than their wealthier counterparts to shop at discount retailers, supermarkets, convenience stores, and department stores, while high-income consumers reported they were 52% more likely to shop online.”
Such findings show that there is definite hope for retail stores.
Furthermore, based on ICSC Research and PNC Real Estate Research, they found that even though there has been a continuous rise in store closing from 2013 till now, it has also been met with many store openings as well.
In fact, with unemployment being at a historical low in the US and the economy continuing to grow, it is always possible that this could lead to a retail boom, instead of absolute doom.
Interestingly, many online brands have begun to take their shopping experience offline, opening up brick-and-mortar stores to expand their reach. Using data and technology to serve them better, many clever online brands are using a physical store to continue enhancing the customer journey.
As noted by Michael Klein, the Director, Industry Strategy, Retail of Adobe, “Personalization continues to be the holy grail in retail–consumers expect highly personalized experiences and brands must address this. Automating personalized experiences, in-store and online, with machine learning and AI will benefit retailers and consumers.”
In the end, e-commerce does not mean the death of traditional retail but serves as a reminder that retailers need to start thinking differently, evolving with the times if they want to survive.