Brief Analysis of the Retail Apocalypse
The rise of big retailers
The 1900s saw a flood of retail shops in North America; stores like Macy’s sprung up in different locations. The consumers were financially buoyant and eager to spend their new money. Businesses capitalized on this and produced more and more to meet the demand. This caused rapid growth and prosperity in all industries especially in retail.
The first wave of feminism also introduced more freedom for women and retailers capitalized on this. More companies sold products to target the new and free woman. In 1924, Saks Fifth Avenue opened in New York. It occupied an entire city block comprising of different retailers. More big retailers set up shop; Sears set up its first shop in 1925, Walmart in 1950 and Target in 1962.
The film industry also played an important role in the growth of retail especially fashion retail. Movies included high end brand like titanic including Louis Vuitton and more people were persuaded to spend money on these brands.
The post war era also brought with it the establishment of more retail shops; shops like Holt Renfrew opened up and revolutionised the dressing of the modern woman in 1947.
Sears continued to grow aggressively, establishing about 700 stores in Canada and in the US. The post war retail boost was also enhanced by the introduction of the credit card by Bank of America in 1958.
Later, in the 1980s chain stores that specialized in one kind of merchandise like Best Buy specializing in electronics were established.
Statistics
The retail sector share of total employment was slightly above 10% in 1954. It rose to about 12.2% in 1987 and has fallen to about 11% since then. Its share of value added however experienced a decline through out this period; it dropped from its 1954 8.7% to just under 6% in the 2000s further solidifying that goods consumption as a share of the economy has seen a long run decline.
It is worth noting however that retail in comparison to total goods production has not shrunk over the long run. Retail value added has managed to stay close to value added of private goods producing sector. Despite the drop in overall share of economic activity, retail employment and value-added levels trended upward throughout 1954–2014.
The retail sector has witnessed little change in its share of economic activity. Since the onset of the great recession, its effect on employment and value added steadily held at 11.1% and 5.9% respectively showing that labour productivity is lower in retail than in the overall economy.
The correlation between productivity level, the growth rate of retail establishment and the investment in information technology is highly positive. Large retailers are more likely to invest in the most recent innovations and so are more likely to survive and withstand competition.
According to the annual input-output tables from the US Bureau of Economic analysis, retail margins as a share of sales of all commodities fell from 5.0% to 4.7% from 1997–2013. Personal consumption expenditure also dropped from 11.99% to 10% during this period showing that consumers reduced their spending on personal; products thereby reducing the profit earned by retailers.
Retail apocalypse
The 2000s financial crisis brought with it the fall of many big retail giants. They faced insurmountable financial struggles causing them to downsize extensively and some had to go out of business totally. The delayed effects of the recession, rising rents, over expansion, low quarterly profits outside of holiday binge spending added to the retail apocalypse (a term coined in 2017). The most popular example is sears which opened its first store in 1925 and had hundreds of stores around North America. Sears had to finally shut its door in 2018 after trying so hard to stay afloat for years. The effect of the crisis was so hard on them that even the merger with K-mart did not pull them out of the hole.
Customers spending habits had changed since the 1900s, customers were more aware of the price differences because they could go online and compare prices. The rise of ecommerce outlets also made it harder for traditional brick and mortar retailers to keep up causing a lot of them to shut down their physical stores. The bigger and the most successful ones like H&M were able to quickly make the switch to ecommerce and keep up but the others were not able to do that.
The oversupply of malls is another reason that triggered the retail apocalypse. In the 1970s, malls were established because malls had become a space were families could go and relax. Noting this trend, businesses established malls in almost every area, they established malls at twice the rate than consumers needed causing there to be an oversupply of malls. Mall visits started declining in the 2010 and has continued to decline till date.
In the face of stagnant wages and reduced employment opportunities, the death of the middle class is another cause of the retail apocalypse. Consumers are more inclined to buy items from discount store like Dollar store H&M, Zara as opposed to high end retailers.
Trends and Next steps
The ongoing narratives are that retail sales will migrate online and physical stores will be virtually extinguished. Some brick and mortar stores will still be available to meet the demand of those customers that still want to have the shopping experience. Also, ecommerce retailers will still have their periodic pop up stores where they would interact with customers and have hubs for customers to pick up their items complain, return and for general interactions. Warehouse stores and supercenters are predicted to grow in demand with Walmart, Target and Costco currently taking the lead. We also expect a rise in online retailers like amazon, eBay and Ali express.
The growth of e-commerce has been steady and substantial between 2000 and 2014. The fraction of retail sales accounted for by ecommerce has risen steadily from 0.9% to 6.4%. Online sales were 19% of ESMOH (Electronic shopping and mail Order houses) activity in 2000 but rose to about 63% by 2013 showing that the rise of ecommerce has been substantial and this trend is expected to continue upwards. The major products accounting for the increase in online shopping are clothing, footwear and accessories with sales of books and music not far behind.
Parallel to the exponential growth and widespread use of the internet, retailers across the globe sought to give their customers online the in-store shopping experience. The World Wide Web became a key touching point, solidifying the relationship between retailers and consumers. Consumers were able to shop and leave reviews about the service and the products they got. Amazon founded in 1994 and eBay founded in 1994 have become one of the fastest growing online retailers along with original brick and mortar stores like H&M and Zara which have since adapted and set up their online divisions.
The retail industry has seen consumer trends evolve in the past years. It went from traditional stores to online platforms and retail hubs. Consumers are more demanding now more than ever; they demand price consistency, fast deliveries and that each company be environmentally aware and socially responsible.
Retailers must keep up with these evolving trends. Consumers are also more concerned with sustainability now more than ever. In the midst of concerns about the environment, consumers are switching to second-hand clothes. North America has seen a number of thrift stores set up to meet this demand. Some stores have also set up thrift shopping online like Thredup and they have been quite profitable. To keep up, existing stores have adopted the thrift side of fashion retail; stores like H&M and Zara have started campaigns focusing on reselling used items. Some stores have also started clothing rental services, where consumers can get high end brands at the rented prices and return it after the rental period.
For some product categories, the online retail component shows no sign of slowing down and might reach saturation as more online sellers establish themselves.
Ultimately trends are in response to consumers; their demands, their way of life and how they socialize. With social media being at its peak and being more intertwined with retail, perhaps the side by side expansion of supercenters and the strength of ecommerce will compliment each other and that will result with more retailers implementing a hybrid of both in their business.
References
https://faculty.chicagobooth.edu/chad.syverson/research/evolutionofretail.pdf
https://uppercasehq.com/blog/evolution-of-retail
https://mi9retail.com/evolution-retail-last-millennium/
https://www150.statcan.gc.ca/n1/pub/11-402-x/2011000/chap/retail-detail/retail-detail-eng.htm
https://www.foxbusiness.com/retail/features-retail-apocalypse-bankruptcy-stores-closing
https://www.businessinsider.com/store-closures-in-2018-will-eclipse-2017-2018-1
https://www.cnbc.com/2018/10/12/timeline-the-rise-and-fall-of-sears.html
