• Jed Johnson

Endangered Retail: 2017’s Tipping Point

Malls have been in crisis since the Great Recession, and although the economy is now growing at a steady click we’re still seeing hundreds of store closing each year. Already in the first two months of 2017 many retailers have either drastically scaled back or have shut down altogether, from big department stores such as Macy’s, Sears, and JC Penney’s to specialty retailers like American Apparel, MC Sports, The Limited, and Wet Seal. It’s clear that many retailers have reached an impasse this year and will have to innovate fast to avoid the fate of their competitors. I’ll take you through the current challenges traditional retail faces, why it’s become a challenge, and some ways that retailers are remaining relevant in this age of rapidly-changing consumer habits.

Online Competition

A major force reshaping the retail landscape is online shopping spearheaded by Amazon. 2016 is the first time in history consumers reported buying over half of their purchases online rather than in-store. However, why has something that’s been around the better part of two decades dramatically taken off now? Firstly, delivery speed has greatly improved in the past few years. Amazon Prime offers free two day shipping to millions of Americans, pushing other companies to match (or surpass) that pace. Prime Now and AmazonFresh have worked to shorten delivery times even further for same day delivery, which threatens industries beyond mall-based retail. Additionally, the process of returning goods has been optimized, which lets consumers buy several try-on sizes at home instead trying on clothing in-store. This all around speed and ease diminishes stores’ convenience claims.

Changing Preferences & Demographics

Although online competition certainly contributes to retail’s struggles, it’s crucial to understand how shifting demographics and consumer behavior impact brick and mortar retail. Spending patterns of young people have shifted away from clothing and other specialty goods. Millennials have less disposable income than other generations due to a much greater percentage of income going to rent and student loans. What disposable income they have tends to go towards other goods, like technology, or experiences. Athleisure, which has seen a huge expansion in the past ten years, is an exception. Companies like Nike and yoga apparel giant Lululemon have excelled because their apparel is stylish yet suited for physical activity. In a society where health and wellness is the new status symbol, athleisure clothes and not traditional labels best showcase Millennial values.

Not only is the market for clothing altered and reduced, it also exists in fewer places than prior decades. Many of the stores closing are in small to mid-size cities that once had a thriving middle class, like Battle Creek, Michigan or upstate New York. Today, these areas are suffering as educated workers and the upper-middle class tend to cluster around bigger metropolitan areas. This means malls once full of stores that appealed to the middle class, such as Sears, JC Penney’s, and Macy’s have suffered, while high-end malls with Nordstrom, Neiman Marcus, and other luxury department stores have increased in popularity. Without the cachet of luxury brands and unable to compete price-wise with lower-end retailers, like dollar stores and Walmart, the middle-market has lost much of its appeal.

New Players in Brick and Mortar

A new breed of brick and mortar stores further increase competition. In a market where millions of products can be bought quickly and easily, displaying inventory is more important than ever. Department stores used to cater to consumers looking for a diverse selection, but online channels have now assumed this role. Brick and mortar retail is now left with the task of curating choices. One new retail concept in San Francisco, Reformation, only displays their top-selling merchandise in the store, allowing for a very open concept space instead of crowded, disheveled racks. Their dressing rooms are equipped with a “magic wardrobe” which can request different styles and sizes without tracking down a sales associate, for a pleasantly seamless shopping experience.

New Innovations: Pop-up Shops, Stellar Customer Service, & Redefining the Store

Not all retailers have suffered recently, but those who have succeeded share some common traits. Firstly, the best retailers fuse online with brick and mortar. Everlane, which mainly operates online, is particularly known for creating “pop-up shops” around the holidays, which have the benefit of a brick and mortar location without the cost of upkeep during unprofitable seasons. Other retailers are enhancing the shopping experience through customer service. At the Apple Store, customers never have to wait very long to get assistance, and products are displayed in a clean, modern space, even though it is almost always extremely crowded.

The most innovative stores don’t even sell products. The only item for purchase at Samsung’s retail flagship in Manhattan is coffee at the on-site cafe. Instead, this store has a theater, hosts events and speakers, and offers spaces to experience their virtual reality products. Is this a model of the store of the future: a showroom with a focus is on experiencing products and a lifestyle, not on buying and selling?