3 Reasons Why Retail Is Failing.
Let’s be honest – it’s been a rough two years for retail. We don’t want to scare anybody, but it doesn’t look like things are getting any better. There’s already been nine retail bankruptcies in 2017! Only nine retailers declared bankruptcy in all of 2016. Leaving J.C. Penney, RadioShack, Macy’s, and Sears in its wake, the retail recession is taking no prisoners.
Historically, decreases in retail spending has been directly tied to poor economic circumstances. Except, that isn’t what’s happening with our economy right now. The GDP has grown for eight straight years, unemployment is under 5 percent, gas prices are reasonable, and the last year and a half has been quite good for middle-and lower-income Americans.
With those telltale signs of a poor economy in the green, the reason for retail recession must come from other sources. The reality is that retail isn’t really failing, rather, it’s changing. Retailers that can’t keep up with the trends are, unfortunately, doomed to fail.
These are the main reasons why retail is changing, and what needs to be done about it:
Surprise, surprise, online shopping is a culprit in the evolution of retail. That’s really putting it lightly – Amazon is eating retail. Between 2010 and 2016, Amazon’s sales quintupled from $16 billion to $80 billion in North America. Another way of putting it, Amazon has grown by three Sears in six years. See, Sears’ revenue last year was $22 billion, if you multiply that number by four, you’ll be in the neighborhood of Amazon’s yearly revenue. It’s no surprise that half of U.S. households are Amazon Prime subscribers.
Except, there’s more to eCommerce than just Amazon. Shopping online provides customers with a risk-free environment. Return policies have become progressively easier, the pricing is always competitive, and you never risk judgement from nosey cashiers when you want to buy a couple quarts of ice cream. Just look at the success of Casper, Warby Parker, and Blue Apron. Things like mattresses, glasses, and even groceries, people are now purchasing through eCommerce channels. Convenience, combined with a relaxed environment, make eCommerce the most comfortable buyer experience. Retailers won’t be able to match every eCommerce perk, therefore, retail needs to offer features that eCommerce cannot.
Experiences Outweighs Materialism
Let’s talk go back in time to the wild world of 2007. With the Great Recession looming, many consumers were buying homes, furniture, cars, and fancy clothes. There was such a focus on owning that people would buy what they couldn’t even remotely afford. Hence the biggest collapse in the United States economy since the Great Depression. Since the Great Recession, clothing purchases, for example, has declined by 20 percent.
Why would that be the case? Traditionally, when incomes rise, so does the amount of material spending. Except that’s not what’s happening in our current economy. Travel, hotel occupancy, and airlines are booming! Likewise, sales at eating establishments have grown twice as fast as all other retail spending. For the first time ever, Americans spent more money in restaurants and bars than in grocery stores last year. What do travel and eating have in common? They’re both experiences. There’s a social element to breaking bread with friends and family, and the value of that transcends material goods.
So, what does this mean for retailers? If retailers want to draw a crowd, they need to provide an analog experience. There’s something special, for example, about thumbing the pages in a book, while listening to a live band, and sipping a coffee. Creating an ambiance should be paramount for contemporary retailers.
This is a hard observation to discuss in terms of retail. One of the biggest problems with retailers is that there are simply too many. Today, there are about 1,200 malls in the country. At the rate that malls are closing down, that number will likely drop down to below 900. Now, that isn’t a dramatic dive, but there’s no denying the decline. Especially when you consider that between 1970 and 2015, the number of malls in the U.S. more than doubled the rate of population (per Cowen Research Group)! Those growth numbers certainly will never be replicated in connection with retail growth.
Moment of sad truth: more retailers are going to fail in the next decade than those that succeed. What that means is that current retailers need to distinguish themselves. The retailers that manage to survive the next decade will likely be staples in American culture for years to come! Meaning, if you can make it the next 10 years, you’ll be able to make it much longer after that. Inevitably, this means that heavy competition is going to take place in order to secure spots as retailers of the future. Retailers will need to compete with prices, convenience, and experience factors. It won’t be easy, but it certainly will be worth it for the retailers that stand the test of time.
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