Traditional Retail In A Heap Of Trouble But Opportunities Are Emerging

This past week I attempted to shop in stores in preparation for my upcoming trip. The in-store experience was grim – it sent me back to Amazon in a hurry.

Here are two examples of how miserable shopping has become:

  • At Bloomingdale’s Soho: Tried to buy a small, lightweight umbrella. Nobody knew if they carried umbrellas. One sales person sent me to the cafeteria. I checked out the men’s dept., found a few umbrellas but they were all too big. Frustrated and sad I left the store empty-handed.
  • At COS on Spring Street: Still a favorite store (and very busy). I found 5 outfits and then happened upon a favorite pair of pants (I bought 3 pairs last year). They did not have my size in store. I asked if they could check if they had them online. NO they could not. I asked if they could call the 5th Avenue store to see if they had them – my goal was to buy 5 pairs. NO they could not. After I got home with my purchases, I went online to order. Could not find them. Called customer support. They could not locate by product number. Ugh!! How can you have an item in multiple sizes in store but have no record of it online? That would have been a $500 order. How many other orders are going unfulfilled because of shoddy logistics?

But enough griping. There are some positives developing for retail . Not sure if it’s enough to overcome the dismal daily news of closings and bankruptcies but we will take all the good news we can get.

SALES CONTINUE TO GROW

  • Despite the struggles of traditional retailers, sales are expected to increase between 3.7% and 4.2%.
  • Online shopping is driving much of that growth.

E-COMMERCE IS STILL IN ITS INFANCY (Source: Motley Fool)

  • E-commerce represents just 8.3% of total retail sales in the U.S. in 2016.
  • That leaves a huge runway for growth in the coming years.

MIXED USE MALLS WITH A “MAIN STREET VIBE”

  • I wrote about the Ponce City Market in Atlanta recently.
  • There’s a strong focus on food, a rooftop beer garden and even a farmer’s market.
  • The aesthetic and ambiance is fantastic. They also have a bike rental facility for the beltway and the upper floors are given over to apartments and co-working spaces.
  • Ponce’s developer, Jamestown, also created Chelsea Market in NYC.
  • Another similar mall is Ridge Hill in Yonkers.
  • Traffic was up 6% last year, with more than 7.3 million visitors. Sales rose 5% in 2016.
  • Developed by Brooklyn-based Forest City Ratner to reflect a “town center,” it consists of retail including Apple and Uniqlo, restaurants e.g. the very popular Yard House and activity-oriented destinations, like LEGOLAND Discovery Center, Rockin’ Jump trampoline park and an indoor skydiving club.
  • There are also upscale extras, such as a Whole Foods and an LA Fitness health club.
  • Entertainment includes a movie theater and seasonal events, such as Octoberfest and outdoor summer concerts.
  • The “mall” also includes luxury condos, an office complex, medical facilities and soon, a hotel. Ultimately, a totally self-contained city.
  • Per Christopher Leinberger, chair of the Center for Real Estate and Urban Analysis at George Washington University, the best national model right now is a project called Belmar.
  • Built on the footprint of a ‘60’s regional mall called Villa Italia that was bulldozed in the early 2000s to be replaced with a grid of streets and a high-density, walkable urban place anchored by a movie theater, great restaurants, housing and offices on top (the largest advertising agency west of Chicago recently located there).

 

UNSTOPPABLE AMAZON (Source: Slice Intelligence)

  • Amazon accounted for 53% of onlines sales growth in the US in 2016,
  • In other words, for every new dollar American consumers spent online, Amazon took 53 cents of it.

 

MOBILE TRANSFORMING RETAIL

  • Since 2010, mobile commerce has grown from 2% of digital spending to 20%.

 

FRICTIONLESS PURCHASING

  • More retailers are finally starting to accept digital wallet payments such as Apple Pay.
  • After I got used to it at Whole Foods, I find it positively antiquated to drag out my wallet and get a charge card out when I shop elsewhere.

 

CATEGORIES POSTING INCREASES (Source: Retail Metrics)

  • Only three segments are expected to post year-over-year earnings growth this year:
  • home improvement, auto parts, and office supplies (find this hard to believe).

 

WHAT ELSE IS BOOMING?

  • Travel and 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.
  • Which might explain all the brawls on planes and at airports. Is there a correlation between too many “deal hunters” jammed together, as in the Black Friday crowds at the mall, that brings out this kind of bad behavior?

 

AND NOW FOR THE REALLY BAD NEWS:

MALL VISITS ARE DOWN DRAMATICALLY

 

APPAREL SALES ARE DOWN

  • Spending on clothes is down—its share of total consumer spending has declined by 20% since 2001.

 

HIGH OR LOW, NOBODY IS SAFE

  • Stores at both ends of the spectrum are closing: Payless at the low end and Ralph Lauren’s flagship store on 5th Avenue at the high end.
  • Especially hard hit: teen retailers. Rue 21 is the latest casualty with over 1000 stores scheduled to shutter. A few years ago it was sold to a private equity firm for $1 billion. Crazy!!
  • More than 10% of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years

 

BANKRUPTCIES

 

AND FINALLY: THIS MIGHT SOUND WEIRD BUT PICTURE THIS…. (Source: The Atlantic)

  • Self-driving cars could change retail as much as smartphones.
  • We may see cars becoming stores with streets, the ultimate real estate.
  • Self-driving cars could make shopping space obsolete e.g. CVS could have hundreds of self-driving minivans stocked with merchandise roving the suburbs all day and night, ready to be summoned to somebody’s home by smartphone.
  • A luxury-watch brand might not spring for an Upper East Side storefront, but utilize an autonomous showroom vehicle to circle the neighborhood, waiting to be summoned to the doorstep of a tony apartment building.

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