Is The Retail Industry Melting Down?

Retail Industry Melting Down

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Blog post provided by http://argentus.com.  Argentus is a boutique recruitment firm focused on Supply Chain and Procurement.

It doesn’t take a genius to see that the retail industry has changed over the past decade and a half. The arrival of Amazon and other eCommerce platforms on the scene has caused a sea change in the way people shop. Retailers have increasingly been forced to sink or swim based not on marketing or product differentiation – as in the past – but on the success of their Supply Chains and eCommerce operations. It’s kind of a wild west, and the most successful players being those who can harness Omnichannel distribution, and avoid excess inventory that will leave them in the dust.

It seems like 2017 is shaping up to be an especially tumultuous year for the industry, with numerous analysts covering how Amazon’s increasingly-large market share is causing more and more other retailers to shutter their doors. (Bloomberg: “Stores are closing at a record pace as Amazon chews up retailers.”) Media outlets have offered “the retail meltdown,” “the death of retail,” and other dire terms as labels for what the industry’s going through as Payless Inc. and Rue21 file for bankruptcy, Ralph Lauren closes its flagship fifth avenue store, and new stories roll in every day about large retailers running aground.

Is the Retail Industry Melting Down?

A fantastic new longread in The Atlantic tackles this question to try to get at the structural factors “beyond Amazon” to explain the way the industry is changing, and why we’re seeing such low share prices for Lululemon, Urban Outfitters, American Eagle, and many other tent pole retailers of the past several decades.

The article’s author, Derek Thompson, digs into some of the data about the retail industry’s changing landscape, and it’s brimming with good information for anyone following the industry. One insight that won’t surprise anyone is that Amazon is gobbling up the brick and mortar retail space unabated, with sales figures rising from $16 billion in North America in 2010 to $80 billion in 2016. As the Atlantic puts it, “you could say Amazon has grown by three Sears in six years.”

But Amazon’s prodigious growth doesn’t exactly tell the whole story. The Atlantic piece charts some other major underlying economic factors behind the Retail upheaval. In short, the great recession of 2007 knocked some changing consumption habits into overdrive, and people are more interested in spending money on travel and restaurants instead of physical goods. This is a phenomenon that the rise of Amazon doesn’t explain, but is still transforming retail. The Atlantic offered some really telling statistics about some of these shifts:

  • Much of Brick and Mortar’s decline can be traced to excess retail space in malls. The number of malls grew more than twice as fast as the U.S. population – which, itself, grew fairly quickly – between 1970 and 2015. However, visits to malls by consumers declined 50% just between 2010 and 2013.
  • Restaurants have grown twice as fast as other retail spending. Americans spent more money in restaurants and bars than grocery stores in 2016. This is the first time that’s happened.
  • Travel is a booming category, with U.S. airlines setting a record last year with 823 million passengers.
  • Mobile commerce has grown from 2% in 2010 to 20% in 2016.

One thing that many analysts have remarked on is how people, and millennials especially, are becoming more interested in experiences (and the ability to post about them on social media) as compared to consumer products. As the Atlantic puts it, “Many young people are driven by the experiences that will make the best social media content – whether it’s a conventional beach pic or a well-lit plate of glistening avocado toast.” This is a major social shift that’s driving the change in the retail industry. When you combine it with Amazon’s massively-growing market share, does it spell  doom for the rest of the industry as a whole?

Not so fast. Another perspective, as articulated for example in this recent TechCrunch analysis, is that the decline of malls and other brick and mortar retailers is part of a cycle of generational shifts. In other words, a lot of malls have gone decades without updating their brands (Ralph Lauren, Banana Republic, Gap) to suit modern, post-internet tastes. In this view, the decline of malls and brick-and-mortar is the decline of a certain distribution model, and it’s not that retail itself is losing out to other customer experiences and industries. It’s a much more optimistic outlook that predicts that a lot of smaller, upstart retailers (many of them in the eCommerce space like Warby Parker, Casper, Bonobos) will grow to become large and supplant the retail giants of old.

So what’s your view? Is the Retail industry in a steep decline, or is the current shuttering of numerous stores just a part of a cyclical, generational refresh of the industry? Let us know in the comments! 

 

This Guest Blog post, “Is the Retail Industry Melting Down?” has been provided by http://argentus.com.  Argentus is a boutique recruitment firm focused on Supply Chain and Procurement.

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