2017 has already witnessed nine retail bankruptcies so far. This equates to the total number of retail bankruptcies in 2016. Brands such as Sears, Macy’s, J.C. Penney, and RadioShack have individually announced the closure of over 100 stores. The stocks of numerous retail ventures have hit their maximum lows in the recent times.
What is causing this scary retail meltdown? Let’s find out.
A simple explanation for this bizarre happening might be this – although there is a steady increase in the total retail spending, various trends such as the opening up of multiple malls and rise in e-commerce have had a significant impact on the way people shop in the United States (and in various other parts of the world).
Increase in online shopping
As mentioned earlier, one of the most prominent reasons for the retail meltdown, specifically the physical stores, is that e-commerce websites such as Amazon are taking away a chunk of the retail business.
Studies reveal that between 2010 and 2016, the North America regional sales for Amazon went up to $80 billion from $16 billion! Here’s another surprising revelation: reports suggest that nearly 50 percent of all American households now subscribe to Amazon Prime.
We know that the entertainment and media categories have been doing quite well in the online shopping space. This includes music, DVDs, and books. However, no-fuss return policies have revolutionized the entire e-commerce scene and have made shopping in all categories cheaper and less risky for the consumers. Further, mobile wallets and apps have made mobile shopping a very quick and comfortable option for most customers.
Here’s the final takeaway: while physical stores will not completely disappear, the rise of online shopping is impacting traditional selling. One is seeing new shopping trends and habits developing in the modern consumer, and it might not be too much time before the living room sofa replaces the local store/mall.
America likes eating more than shopping
It seems like the focus is finally shifting from materialism as Americans are happily spending more on meals rather than shopping. Even though there are unlimited options for online shopping and an excessive number of malls coming up in the United States, the retail meltdown continues. Why?
Let’s try and analyze this trend by first looking at the wages. Even though increasing wages are good for workers as well as the general economy, they do end up causing problems for low-margin businesses dependent on pocket-friendly labor. This includes retail stores. We know that salespeople and cashiers are among the primary job positions held by the citizens of the country. But the recently introduced minimum wage laws combined with the shortage of labor have led to a massive rise in wages. This has further added to the plight of the poor retailers who are already competing with online e-commerce giants like Amazon.
Another factor contributing to the retail meltdown is the decline of clothing stores. Consumer shopping trends have undergone a significant change, and more people are likely to spend on eating out and traveling rather than clothes.
Studies suggest that people were enthusiastic about shopping for a variety of different things including furniture, clothes, cars and homes before the Great Recession. However, there has been a massive decline in this kind of spending, especially on clothing, in the recent times.
Unlimited number of malls
Do you know that there are approximately 1,200 malls in the United States? The country might be left with just 900 in the coming ten years.
Studies suggest that from 1970 to 2015, the rate at which the malls in America grew was double the population growth rate (Cowen Research).
America has 40% more shopping area per capita as compared to Canada. In fact, it has more retail space than a lot of other nations such as Germany and the U.K. Therefore it was natural for the Great Recession to serve as a significant blow to the retail scenario in the United States. There was 50 percent decline in mall visits from 2010 to 2013. And the decline continues till date.
According to research, the increase in healthcare expenditure and sluggish wages automatically reduced the spending on things like clothing. In addition to this, logo-centered brands such as Abercrombie and Hollister received a permanent blow by the recession. These brands were doing well in the 1990s up till the 2000s in high school culture. There was also a shift in consumer behavior, and the majority of the shoppers started looking for bargain deals and discounts at fast-fashion outlets. This also took away a chunk of the sales from regular department stores like Sears and Macy’s.
It may come as a surprise, but this retail meltdown has a social element too. The majority of the millennials have become experience-focused and want to do things that will help create the most brilliant social media content. This is why vacations on the beach or hills and mouth-watering delicacies are becoming a priority when it comes to consumer spending. After all, they make for the best Instagram pictures, don’t they?
So, while departmental stores are gradually losing their hold over the American consumer, industries such as food, fitness, travel, and entertainment are likely to be the big buck earners in the near future.