❝ It’s easy to blame all of the industry’s woes on Amazon, the online giant. There’s little doubt that the fifth-largest U.S. company by market cap has been disrupting traditional retailers…But online is far from the only source of retail’s problems: The large chains, the malls they usually find themselves in, and even flagship urban stores have failed to adapt to rapidly changing consumer tastes. This lag has been readily apparent for more than a decade.
❝ Note that this is not the product of hindsight; during the financial crisis, it was clear to me that “retail shopping will emerge from the recession with a much smaller footprint than before.” In 2010, I reiterated those views, observing that “the United States still has too large of a retail footprint — 40 square feet of retail space for each person; that is the most per person in the world … that needs to come down appreciably.”
❝ My present views are even less optimistic. We are probably closer to the beginning of that transition than the end. This is a generational realignment in the way consumers spend their discretionary dollars, and the ramifications and economic dislocations are going to last for decades.
❝ The build cycle. One aspect of the “overstored” issue is the mismatch between retail trends and the construction cycle. Trends change much faster than permits can be issued, buildings constructed and subsequently rented. That lag can be consequential.
Look at the growth in big malls since the 1990s. Forbes notes that “since 1995, the number of shopping centers in the U.S. has grown by more than 23 percent and the total gross leasable area by almost 30 percent, while the population has grown by less than 14 percent.” All of the retail construction reflected a very ’90s shopping perspective, one that’s considerably different today. It is more than just the rise of the internet: Sport shopping, retail therapy, and conspicuous consumption offer less prestige today than they once did.
❝ Bor-ing!…The wild success of the nearly 500 Apple stores provides lessons for other retailers. At $5,546 in sales per square foot, Apple sells more goods at retail than any other store in the world. The same exact products can be purchased at Best Buy, at Amazon, or even Apple’s own website. Yet the company has hit upon a formula that sends more than 1 million visitors per day worldwide into their retail locations with money to spend. (Surveys have shown that putting an Apple store in a mall increases sales 10 percent for all the other retailers.)…
❝ One last issue: price. Thanks to “showrooming” — checking out stuff in stores only to buy online after finding out how much less it costs — consumers have learned how stiff mark-ups can be in retail. When customers believe they’re overpaying, it does not lend itself to repeat business…
❝ Those warnings about excess retail space are almost a decade old. If anything, the existential threat to the consumer retail industries are even more acute today.
Most of Barry Ritholtz’s writing gets onto this site – when I feel it fits – pretty quickly. Been saving this one for more than a couple of weeks. Reports the past few weeks continue to bear out everything in this piece he wrote for Bloomberg in March. The great Howard Davidowitz matches Barry’s analysis with even more colorful language and greater forecasts of doom for shopping center and mall anchor stores.
Keep your eyes open for bargains at “Going Out Of Business” sales!