Is Retail Dying?
Is retail really dying after all? All industries are getting annihilated in retail. Fewer buyers are walking the trade show floors and many manufacturers too are throwing in the towel.
These days, it’s hard to imagine a world without discount internet sites where product is sold at a deep, deep discount off of its retail price. These aren’t just auction sites either, but rather sites where product is simply dumped, regardless of its origin. For example, a shirt that retails for ninety dollars in the store, my fiancée recently found on the internet for $10 plus shipping.
Will retail as we know it die, as the popularity of these discount websites continues to grow?
I think the answer is probably no. Retail will never completely die, people still need to go and try on wedding dresses and wander aimlessly around shopping malls. However, I do think that the big days of retail are officially over. As consumers become more savvy online, there will be more tire kickers. And this trend will just grow and grow.
Brick and mortar retail giants, unless they dramatically alter their business models and their distribution models, are doomed. As shareholders flee the space and banks stop funding commercial retail, the giants will certainly fall. We’ve seen both Circuit City and Best Buy slowly crumble. What other big box names will follow?
Any opinions on the future of retail as we know it?
Posted by Corey Curwick on September 19, 2009
More from this category
- Seth Godin Prophesizes About the Future of Your “Job” (You Should Read This)
- Is the Marriage Between China and America Destined for Divorce?
- Is Retail Dying?
- The Descent of Money
More from this author
- Seth Godin Prophesizes About the Future of Your “Job” (You Should Read This)
- The Best Companies to Invest In This Year
- Is the Strategy of “Glocalization” a Dead End for Multinational Companies?
- Is the Marriage Between China and America Destined for Divorce?
Subscribe to this author
The snowboard industry as we know it is collapsing around us. Retailers and manufacturers are hurting.
well, it (retail) will never die.
as we like to smell the food, and will not start eating pills, we will keep on going to touch and check what we buy.
retail will never die, but it will evolve.
in the future , retail and internet will share the biz, and work together. example: dell computers start retailing now in wall mart, and apple is the king of retail, althou they can sale on the internet only. so we will see the mix going on. i would not be suprise if amazon stores will be in the malls son hahah
I don’t think retail itself will die. Not yet anyway, not for a very long time, but I am incline to agree. If the big retail guys do not make some huge sweeping changes then they will experience some serious and much harder falls than what they are dealing with now. Consumers are evolving. The days of constant and instant gratification shopping are coming to a close. Don’t get me wrong, there will ALWAYS be those people that just simply cannot help themselves and will just buy what ever they see when they see it even though they really do not need it and cannot afford it. For those people I am truly sorry, but the big picture is telling us something very important. There is one TRUE constant in this world and that is change!
Kmart is not going to last long, Walmart is making sure of that. Apple is kicking the hell out of Microsoft! The only difference there is the huge range in price as well as the fact that PC’s are in almost every home and businesses have become almost addicted to the Windows platform.
However, anyone that has every used a mac computer for over an hour knows that Apple makes a much better product and it lasts a lot longer. That is truly evident. Once apple comes down on their prices and become more competitive in the majority of their computer products, then Microsoft is going to have some big problems.
Anyway, shopping malls are going to become more of a social gathering place than a place where the big retailers are going to be. I believe there will always be an anchor store in the big malls, but the stand alone department stores are going to become a thing of the past. The exceptions are the ones that are almost a national landmark like Macy’s New York. That place is one of the biggest department stores ever. A full city block long in 2 different directions and 14 stories high. Plus it is located in the middle of Herald Square in Manhattan.
Tourists go there all the time.
Beware the stand alone box stores… (Costco is another exception) LOL
The small retail stores are closing right&left in Wilmington, NC , however the big box stores are doing ok, not great.Of walmart & McDonalds business is doing well.
I agree with both Elie and Rick S that shopping malls will never cease to exist but that the concept as we know it will begin to evolve into a completely different animal altogether. Elie’s example of Amazon being in the mall is a perfect example of this. Sounds radical but this is exactly the direction that shopping mall retail is headed. Apple will certainly continue to have a huge presence there, with its experiential, “The Sharper Image” kind of draw. This experiential type of retail will surely take the place of the JC Penneys and other big box retailers.
Ron says its already happening on a massive scale all around us, and I agree. However sad, its just about evolving a business model to meet what’s happening now, in today’s economy. Just because you made money doing something one way yesterday, doesn’t necessarily mean that you can make money doing it that way tomorrow.
Don’t you just love business!
In my opinion, retail sales will not die; however, it will most likely undergo a tremendous revamping over the next 3 to 5 years. Actually, with the advent of Amazon, who struggled 5 years ago, and others retail sales has become so easy and convenient over the Net, it is no wonder folks don’t want the hassle of walking through malls. Each year when the Christmas sales numbers are released, the Net sales results are not released until January and they grow expotentially. I am not sure this is all bad; however, it sure makes for a lot of rentable commercial space in virtually every real estate market. As is always the case, what is good for one industry often times has a negative impact on another industry.
I don’t think retail will die. Shopping is always an experience. No different than eating a frozen dinner vs. eating out. Eating out is a presentation and experience. There will always be a company that wants to do things on a grand scale and people will support it…. to an extent.
If you drive by the large mall in our town of Swampscott there are many store fronts empty. Trader Joes, and upscale food retailer closed its doors and after a year, PETCO is opening in the space. What does that tell you about the state of things?
You wrote: “Fewer buyers are walking the trade show floors” This is very true. Last year in September the trade show we exhibited at in Chicago was well attended and there was market momentum. By November the show we did brought in about 50% fewer attendees. The momentum was very measured.
We exhibited at Print 19 in Chicago for 6 days last week. It is the largest show for the Printing Industry in the world in2009. Attendance was down more than 50%. For some exhibitors this show was a disaster because of poor sales and their cost of exhibiting. One machine manufacturer from the UK said he would never exhibit at this show again. His costs of bring in his equipment from the UK was a big loss because he did not sell any machines. How and why did he miscalculate?
Your instincts are correct about your blog. You need to get out in the market and get feedback. When I go to the shows I get the rejection and the positives I need to keep in a viable direction.
Bill
http://www.stopstatic.com
For those of us in the 50+ aged group, retail is still very viable. We like to visit the traditional stores, feel and touch the goods, smell the samples of perfume and browse in the traditional sense. I still do not like to order many goods on the Net due to security issues, which I know is moot, as our card information can be transgressed at the counter level, too. However, I do think that Retail will become more specialized and the big chain stores are beginning to fade away in many instances.
I had an interesting discussion with a client of mine late last year from India about global retail ideas. I had been to several places in Asia (for business and pleasure) but never India… until October. I knew that I was in for an interesting experience, but it really opened my eyes to a few business concepts that could be translated into ideas for this economy. While in India, I spent a few weeks meeting different clients that I had been e-mailing over a few years and I needed to get some face time to progress the relationships.
From Mumbai to Delhi, I have never seen so many people. Every corner I went around, I thought there would be a calm side street like in New York, but it was yet another jammed scene with every twist and turn. Each block was its own little city… so at the end of my 2 week trip, I had one final client meeting just hours before my flight. I had only e-mailed this guy a few times and wasn’t sure about the value of the time we would be together, so it was a final add-on to the trip- and it ended up being the most interesting and informative. He was the liaison to an Canadian-based auctioneer for all kinds of products, but had helped get eBay up and running in India also.
He told me a few case studies about micro vs. macro selling. One example that best describes this idea… a north American shampoo company launched their product in India and wasn’t selling many big bottles. It was a good deal, but people weren’t buying the large bottle – even after a price drop. So they repackaged the shampoo into ketchup sized packets and sell way more than bigger packaging (through volume). Strange for us to think that way- go smaller to get more in sales.
In the USA, we always want more (20% more, buy one-get one free, etc). So it seems that we are selling retail items in bigger quantities to make people think they are getting more (Costco/Walmart). This does help move volume, but at the same time there is an interesting trend in food sales to make packaging bigger, yet give the customer less volume through perception – concave bottoms on jars, bulky packaging with less inside. But there are new markets to hit… find distributors in new areas and partner up with people already distributing products similar to yours to piggyback retail space. You might share some profits, but you reach more of an audience with less effort.
As the economy slowly turns around… maybe retailers will have to get creative and try to sell more volume with a smaller margin to make things affordable to more people. Difficult to do when you are balancing brand integrity and distribution channels (online, 3rd party distributors or self contained retail centers), but then again, retail centers in malls seem to have more and more comparison shoppers for online purchasers anyways. It’s almost as if it’s a live showroom for a virtual marketplace.
But… in the end, people want to do little things to feel good during this difficult time. We are a nation of consumers and it’s I’m sure it’s been difficult for many people to curb their impulse purchasing habits… so a small Hershey bar, McDonald’s cheeseburger, bottle of nail polish, new shirt are all now examples of mini-splurges during tight economic times. Combine effective marketing/advertising to convince people that they really deserve something little to make themselves happy might be a lot easier to make money in retail right now compared to up-selling larger homes, expensive cars or luxury vacations.
I like Mark’s comment: “It’s almost as if it’s a live showroom for a virtual marketplace.” This is the future of retail as we know it today.
I will add few things to what Mark was saying. Micro sales being better then Macro in some cases has some India Specific reasons to it. 70% marketplace there is still rural/agricultural and they depend on daily wages. So those people do not have any alternatives but to buy only micro items, to be within there spending limits. Also India does not have concept of return,if you do not like a product, as we have here in major stores. So people like to try micro items first, if the option is there, before buying the macro stuff.
I had an interesting experience buying a laptop recently. Even though it is easy enough to buy on internet and you don’t have to pay sales tax, but there are times you want to try it out. You want to try out the keyboards and check the actual operational speeds etc. I got a pretty good deal on a lenovo , but when i got i realized i don’t like the business style keyboard there and had to get rid of it. and then i went to staples to actually check out the new hp pavillion, before buying it and realized that it was too shiny and metallic.
So the items where you need to have the feel will still be retail items. Though once you have the look and feel, you can buy them online, if that is cheaper and you don’t mind waiting for few extra days. So that makes sense for apple and dell to open stores as people want to feel those devices before buying them. But then retail stores would have to give other incentives, like matching prices to internet, to make the final sale.
In regard to the future of retailing. This CNBS report ‘The New Age of Wal-Mart” airs tonight at 9:00 PM EDT (Comcast Utah CH # 023 7 PM) 1 1/2 hours and Fri same time.
This is a 5 year follow up to the original, which I’ve seen “Inside Wal-Mart”.
For you & others interested: http://www.cnbc.com/id/18803817/
Pudge
Retail, and other forms of commercial real estate, are certainly not “dying fast”. Despite all the technology now available and the accelerating rate of change in the technical arena, changes in buying behavior are still social changes and, as such, take time. Less time than they did 50 or even 20 years ago, mind you, but still more time than advances in computers and the Internet might lead you to believe.
The future in commercial real estate will always be about whatever transactions or interactions people must, or prefer, to do in person. The list of those will continuously change, but there will be some of those for a long time to come. It is not about “will there be” but about “which will be” the interactions in play. So, for investors or developers in real estate, the key is not whether to invest, but how.
Until now, a large part of the success of any commercial real-estate developer or investor (not speculator) has been the usual factors: a good buying price and conditions, reasonable loan-to-value ratios, positive cash flow, market research to determine uses and targets, and careful proactive attention to the tenant mix, tenant creditworthiness, and good relations with the tenants.
I don’t see much of that changing in the next 10-15 years. Some tenants will leave, but others will enter. Some tenants will downgrade, and others will grow. Land/office/retail space that is well-sited, well-managed, and has good tenants will still consistently outperform its competitors and command premium pricing. And that premium pricing will still provide attractive returns to patient capital.
Rodolfo,
Not all retail will die but retail “as we know it” right now is dying. As people grow more and more comfortable buying products online, and particularly as the next generation gains more buying power over the next 5-10 years, retail as we know it will be a completely evolved species. Have you considered that? When you say, “change in behavior happens gradually” what about this next generation that lives and breathes the internet? I disagree with your assumptions. We are in the wake of immense change right now and entering a completely new economy. Retail as we know it right now will NEVER be the same.
Your stance reminds me of what all of the financial “experts” were saying right before the real estate bubble burst when they were denying the fact that we were about to enter a recession.
Have you read “Purple Cow” by Seth Godin? Or his newest book “Tribes?” I recommend both of them. Particularly Seth’s book, “Purple Cow.” This book really hits on this topic and drives home the reality of where we are and where we’re headed.
Corey
The future of commercial real estate is very grim. My last position was for a firm operating in commercial real estate.
The firm that I worked for did not operate in the retail sector. We did not believe that retail was a quality sector. Retail is a sector that is largely affected by consumer sentiment and the economy, both in it’s online and offline forms. When people cut back spending, discretionary items go. Many tenants in retail spaces sell items that would be classified as discretionary.
Look at all the big name retailers that have gone out of business lately: Mervyn’s, Linens N Things, Circuit City. Sears is in trouble. An argument can be made that all these retailers had flawed business models. Regardless of that, these companies going out of business created huge vacancies in retail properties. Losing these tenants means those buildings can’t generate revenue as well.
I support Corey’s line of thinking about the changes in retailing. I would also add to that the fact that people won’t be spending as much in the years to come. Much wealth has been wiped out in the last 2 years. It will take at least a generation to repair the psychological damage from this downturn. Consumers still need to get their balance sheets in order.
The short answer is no, retail is not dying – I believe there will always be physical locations for people to go browse merchandise, see/feel/touch options, test out products and have a name and a face to return to with issues or questions – not everything will be sold over the internet. Retail is, however, consolidating, and it will leave the ageing or redundant retail outlets out in the cold. That is where the commercial financing shoe will drop.
Consider this: retailers like to be close to other successful retailers. As big retail like Home Depot or Bed-Bath & Beyond consolidate the number of outlets to the most successful ones, the centers they depart will likely see the smaller retailers depart as well. This will cause a downward spiral in rental revenues so if one of these centers is highly leveraged, it may be in big trouble, as will the lenders on that center.
It is not inevitable, but owners and their financiers will need to be creative and nimble to find new users, and maybe new uses for these centers. Maybe they are converted to call centers, self storage facilities, residential or mixed use buildings, community centers or other such (since they take all shapes and sizes, the highest and best alternative uses will be different in each case).
The more owners and their banks can anticipate this cycle and either prevent it or prepare for it, the less hard this correction will be. In larger centers, communities may need to be involved to avoid blight and to put these centers to new and creative uses as they are, or totally recast and reposition them into other productive functions.