Society

The End Of Brick And Mortar Retail?

By Mark Esposito, Weekend Contributor

By any standards it’s been a bloodbath. Nine straight quarters of losses at Sears and it’s stock plummeting 15% this year alone. It’s cousin, K-Mart on life support after contributing to the near $1 billion loss for the holding company that owns both for the first half of this year. Over at Target, still reeling from customer outrage at its data breach, things weren’t much better. Profits plunged 62% last quarter compared to the same period last year. On Wednesday, Target cuts its profit predictions again to avoid a wholesale run against its stock as Wall Street expectations continue to drop. It’s stock is off 5% this year. At that flagship of retail, Walmart, seas are swirling as the giant reports flat sales and financially reluctant shoppers. Most of its growth is coming from smaller stores though its superstores maintain the sales course for the massive chain. Company earning grew at a snails pace of 2.8% this year despite massive sales promotions and even deeper price cuts. J.C. Penney remains the old man of retail continuing its post-no coupon strategy recovery but an an anemic pace. The best that can be said is that its “operating income for the quarter was a loss of $70 million which represents a $325 million or 82 % improvement over last year.” Whoopee! Even consumer electronics big leaguer Sony announced plans to close most of its retail outlets in the U.S.

What’s causing the meltdown? Part of the woes spring from online sales which are growing at a fever pace.Online shoppers in the United States spent $69.2 billion in the fourth quarter of 2013, up 16.1% from approximately $59.6 billion for the fourth quarter of 2012. Projections show 9.5% annual growth through 2018 and the the dollar growth from the actual 2013 figures of $263 billion is now forecast to be $414 billion by that time. That would make ecommerce account for almost 11% of total US sales.

“There are not a lot of solutions [available] to retailers except to introduce dynamic pricing in stores,” says ecommerce analyst Sucharita Mulpuru.  Consumers are increasing the use of mobile devices to compare prices. Mulpuru points to  data revealing that the price premium consumers are willing to pay to store retailers to get a product right away isn’t large. “When a price in store is 1% to 5% more than what a consumer could buy the same product for elsewhere, 52% of consumers in Forrester’s Lifecycle Survey said they’d buy it there. That percentage drops to 18% when the price is 6% to 10% more.”

What does this mean for American workers? The picture isn’t pretty with lower numbers of workers needed to maintain retail ecommerce sales, the market for new hires who traditionally have gravitated to brick and mortar retail jobs is shrinking. And with less brick and mortar required, commercial construction will surely lag. The rise of ecommerce likely also means a rise in urban blight as more and more retailers will shutter stores. This year alone Staples announced closing 240 stores in direct response to online competition. Typically, these stores sit vacant for more than a year.

The effects go beyond the economy too as less brick and mortar means less state sales tax revenue leading to decreased government services. It also has direct impacts on employment taxes paid by workers.

Still there is opportunity in retail as smaller companies take up the slack in niche markets. TJ Maxx and Marshall’s sales have skyrocketed around 13% in the last month catering to cost conscious consumers seeking designer goods at discount prices. Even some old line staples like Macy’s is reporting impressive second quarter earnings with similar results at Kohls.

Entrepreneurial ventures may see more hospitable climates as retail landlords continue to offer incentives to get commercial tenants  to fill the record vacancies causedby  the 2008 economic downturn. This creates opportunities for small businesses which have traditionally been the driving force in reversing economic hard times.

Like most economic news, it’s a mixed bag, but surely one to watch.

~Mark Esposito, Weekend Contributor

By the way and for better or worse, the views expressed in this posting are the author’s alone and not necessarily those of the blog, the host, or other weekend bloggers. As an open forum, weekend bloggers post independently without pre-approval or review. Content and any displays of art are solely the author’s decision and responsibility. No infringement of intellectual property rights is intended and will be remedied upon notice from the owner. Fair use is however asserted for such inclusions of quotes, excerpts, photos, art, and the like.

 

 

 

71 thoughts on “The End Of Brick And Mortar Retail?”

  1. Outside of COI issues in bankruptcy and racketeering bustout/ bankruptcy rings; this just so happens to be my area of expertise. (Having handled over 1000 scenarios of liquidations, salvages, turnarounds, bankruptcy and bank replevins.

    Sears – too – happens to be a particular area of focus.

    As for the “END” of brick and mortar – It’s all hogwash!

    Our eToys.com has much written about it, throughout the past 15 years. It was one of most lauded I.P.O.’s in the country. The stock, starting at 18, soared to $85. Most press entities (possibly fueled by a pump-n-dump scheme of Goldman Sachs misinformation), stipulated eToys was now worth $8 billion.

    True story of eToys

    Each year, eToys had phenomenal sales growth; but it was NOT making a profit. The (true) profit center of eToys, was the BabyCenter.com division.

    —— Online retailing is Mail Order part deux.

  2. Outside of COI issues in bankruptcy and racketeering bustout/ bankruptcy rings; this just so happens to be my area of expertise. (Having handled over 1000 scenarios of liquidations, salvages, turnarounds, bankruptcy and bank replevins.

    Sears – too – happens to be a particular area of focus.

    As for the “END” of brick and mortar – It’s all hogwash!

    Our eToys.com has much written about it, throughout the past 15 years. It was one of most lauded I.P.O.’s in the country. The stock, starting at 18, soared to $85. Most press entities (possibly fueled by a pump-n-dump scheme of Goldman Sachs misinformation), stipulated eToys was now worth $8 billion.

    True story of eToys

    Each year, eToys had phenomenal sales growth; but it was NOT making a profit. The (true) profit center of eToys, was the BabyCenter.com division.

    —— Online retailing is Mail Order part deux.

    Having handled such brick n mortars as Channel Lumber, Ames, Sky City Dept. stores, SEARS Catalog Centers, along with duel online/bricks of NCA Computers, MicroX, Campfields and more, for 3 decades; one gets to see it from all sides.

    In 1999 and 2000, I forewarned lenders and vendors to “be careful” of how much credit they extend to “online”/ dot coms. Telling them that mail order companies were being replaced by online retailers (and that such was not – necessarily – a good thing).

    Whereas, as an older mail order, you had control of your clients. Who ever mailed you (regularly) had a good chance that disposable income and/or windfall cash flows – would wind up at Clair’s etc; because your mailing was upon the buyers coffee table.

    In online sales – EVERYONE’s catalog – is upon the table!

    On top of that the various vendors out there, now have to compete with the likes of Walmart etc., – super low/ high volume transaction mechanisms with State of the Art (Rapistan etc.,) order processing centers.

    Additionally – upon the crunch of lower profit margins; there’s the high cost of 2 way shipping of returns. (In brick n mortar retail, your customer provides the labor of picking the item, engaging in the payment transaction and hand walks the product back to you – for return.

    Such isn’t so with online retailing – where customer returns nearly double!

    One transaction I handled just prior to eToys, was ToyTime.com that was sold to online retailer Overstock.com (me and Patrick had a war – so to speak – and he lost). Overstock didn’t want the open case goods, as it was going to be a nightmare for his processing centers. Where – brick n mortars – would gobble it up with glee. (BTW – I do appreciate how Patrick Byrne & Goldman Sachs are putting on/taking off – the gloves – Often)!

    eToys & Fingerhut

    What you don’t realize, is pulling a single customer item is cost prohibitive for any warehouse (basically what online retailers are). In eToys, I had this worked out with Fingerhut and/or Scholastic. (BTW – both those scenarios turned out to be nixed; but – such was a result – of federal crimes not of Fingerhut and/or Scholastic’s design).

    Our plan was to say to all the Toy vendors (Mattel/ Hasbro etc.,) that, with Fingerhut, we can be the Amazon of the Toys industry. SEARS, Walmart, Target, Kmart, Costco …on and on…. could (online wise) SELL EVERYTHING that existed.

    Because it would all be stocked at eToys!

    Instead of Walmart, Kmart……… that could not possibly put every item in the world in their warehouse; and deal with individual customer sale nightmares –

    they would all be buying via eToys.com/Fingerhut – Amazon pro of Toys sales.

    Bain Cap & Goldman Sachs, along with Paul Traub & Ted Deikel;
    are the ones who nixed the Fingerhut deal as it went via Petters Ponzi.

    But the program would/could work –

    IF YOU DIDN”T HAVE ganefs (who can’t do regular biz) running the show.

    SEARS

    For a background on SEARS – the real story – you have to go back to the Kmart bankruptcy and eToys.

    Yours truly had eToys merged with Scholastic – that crooks (ganef’s) nixed, by their racketeering schemes. So that eToys, FAO Schwartz and Kay Bee could wind up at Bain Cap (under Toys R Us); once Romney & gang did their “The Learning Company” $3 Billion fraud on Mattel Toys (resulting in 12 million shares of Mattel’s stock, to the bandits – who are now “inside” the upper rooms).

    The Learning Company merger (by MNAT in Delaware) with Mattel;
    happened in 1999.

    Then (with Mitt & gang inside) Bain Cap acquired Kay Bee Toys mid-2000.

    eToys was then put into bankruptcy on March 7, 2001 (quite possibly not being insolvent at the time). MNAT then falsifies documents (confessed) to become eToys Debtor’s counsel (hiding the fact that MNAT is also working for Goldman Sachs and Bain Capital).

    Michael Glazer, CEO of Kay Bee, is a Director (now CEO) of Stage Stores that is also in bankruptcy (in Houston TX); and Barry Gold is the director’s assistant at Stage Stores who hired Paul Traub’s NY law firm (one partner living in Houston).

    They all go to eToys with Traub falsifying documents to become eToys creditors counsel and his law firm, with MNAT putting in Traub’s secret partner (also confessed) of Barry Gold – shoving yours truly out – so Barry Gold can be post-bankruptcy petition CEO and Confirmed Plan Administrator.

    At that time, I was totally unaware – as were many of the creditors – that they were all one big gang (behind the scenes). Debtors counsel and creditors counsel – are required by law – to be diametrically opposed.

    But – when they boasted of buying eToys for $5.4 million, yours truly cancelled those sales (as the federal court appointed chief of eToys bankruptcy); and we – instead – caused Bain Cap (Mitt CEO)/ Kay Bee (Glazer CEO) to have to outbid others by tens of millions of dollars.

    So – they tossed me out (illegally) and Barry Gold got Mitt his money back.

    ———————————————-

    Then, Kay Bee CEO Glazer pays himself $18 million (reward) and Bain Capital $83 million; before Kay Bee Toys filed bankruptcy.

    MNAT (openly) represents Bain Capital in the $83 million fraud conveyance;
    and (believe it or not) Traub is Creditors counsel who asked to prosecute.

    Meanwhile, Traub and Barry Gold formed a company to compete (delete) my company of Collateral Logistics Inc; as in April 2001 (after eToys filed bk) – Traub and Barry Gold became co-owners of Asset Disposition Advisors (which was working the Kay Bee case).

    —————————————————————–

    Kmart files bankruptcy – Traub is assigned as shareholders counsel;
    all stock holders get stiffed (except for Ron Burkle/ Ralph’s).

    And Kmart comes out of bankruptcy so strong – it buys SEARS for cash!

    ————————————————————————

    CONCLUSION

    Brick n mortar retail will NEVER die – customers need to see/ touch/ smell; and there are other items (eggs, milk, medicine & manure) that simply can’t be mailed – or wait to be mailed.

    Getting started on how Walmart does engaging in bad faith power pushes to assure it is always pumping profits – is a whole other story itself.

    Toys R Us IPO failed – after NY Times “Rigging the IPO Game” story on eToys case came out; because institutional investors are not so easily duped now.

    Bain Cap owns FAO Schwartz, Dunkin Donuts, Guitar Centers, Kay Bee, Sports Autority, HCA, Clear Channel, eToys/Toys R Us and on and on

    not because it does good business

    but – Because – THEY steal (racketeer) cash flows to reinvest.

    The business model is perfect. Put monies in, promise more, get your guys “inside” and get rid of those who can’t be bought like me. Take out all the cash you can, file bankruptcy and stiff all the creditors.

    Rinse, lather, repeat (eToys & Kay Bee in BK multiple times but back to Bain); but it is ALL illegal. Good Bankruptcy Ring Robber Barons – can’t compete “Legitimately”! That’s the only problem with online v brick n mortar.

    All business (if I or another honest guy was at the helm);
    are required (in this day n age) to be BOTH brick-n-mortar and online!

    Fingerhut is a crime of major proportions;
    because Traub, Gold & MNAT settled eToys v Fingerhut

    Then Traub (controller of Petters Ponzi as per court Receiver documents);
    bought Fingerhut and had the address of 655 Third Ave NY NY

    Traub Bonacquist & Fox’s home office address!

    N’est-ce pas!

  3. Other reasons for stores like walmart etc losing sales is because it is a lousy place to shop and people have gotten fed up. (In addition to people refusing to shop there specifically, since this is one with which I am familiar, their labor policies, including the situation in Bengladash after the fire when they refused to sign on to the safety regulations that were to be put in place
    You can never find a salesperson when you need one. I can’t tell you how many times I have had to wander through the stores, just recently Sears which ironically had a customer service booth at the entrance to the store but I could not find anyone and after looking and going through a number of other departments finally just turned around and left. and when you do there is a good chance they don’t have the ability to help you.

    And Brookin in a nut shell (a sort of global shell full of nuts), I suspect this can be rectified along the lines of Obama-care by simply finding a way to mandate that people buy stuff regardless of whether or not they have any money. Let them sell their houses, or lacking that, their cars, or lacking that, their bodies, or lacking that, the bottle of Rocket wine they are hiding under the news paper that also serves for their blanket.

    Nice anti ACA spiel but for the fact that I don’t have to pay for your stuff when you buy it but cant pay for it, I do have to do that for the millions who were uninsured before the ACA.

  4. @swm

    What is the point of your remark, ““Zero Hedge” is a very Austrian economics based website with a doomsday feel to it. Many people read it though.”???

    Are you implying that it is suspect as a source??? Are you disputing the NYT’s conclusion from that article:

    ” During the recession, employment declined across the board, but 60 percent of the net job losses occurred in middle-income occupations with median hourly wages of $13.84 to $21.13. In contrast, these occupations have accounted for less than a quarter of the net job gains in the recovery, while low-wage occupations with median hourly wages of $7.69 to $13.83 have accounted for more than half of these gains.”

    FWIW, I was banned from ZeroHedge, for being an anti-Gold Bug, but I still read the site daily, along with Naked Capitalism and Market Ticker. I recommend that you try reading them also, as it is a good mix of different views on the economy.

    And, if you want a sample of my anti-Gold Bug stuff:

    Where The Gold Don’t Shine!
    An Irish Poem by Squeeky Fromm

    There once was a Gold Bug, so bold,
    Who made him a phallus of gold.
    It was a tight squeeze,
    But he saved storage fees. . .
    Though he grimaced a lot, so I’m told.

    Squeeky Fromm
    Girl Reporter

  6. Interesting subject and very well presented, but I can’t help touching on what is probably totally irrelevant, not to mention irreverent. Is retail e-commerce also down? As Squeeky Fromm, Girl Reporter suggests, if the workforce has no money to spend, Brick and Mortar along with virtual retail, may have finally reached the corporate economist’s milestone of 100% profit (salary drag approaching cold fusion levels – or absolute zero) – the only downside being that it’s basically 100% of nothing since folks, as Obama calls them when he wants to take hell and turn it into a Norman Rockwell painting, have no money to spend.

    On the bright side, with corporate lawyers, lobbyists, and think tanks, American know-how in a nut shell (a sort of global shell full of nuts), I suspect this can be rectified along the lines of Obama-care by simply finding a way to mandate that people buy stuff regardless of whether or not they have any money. Let them sell their houses, or lacking that, their cars, or lacking that, their bodies, or lacking that, the bottle of Rocket wine they are hiding under the news paper that also serves for their blanket.

  7. “Zero Hedge” is a very Austrian economics based website with a doomsday feel to it. Many people read it though.

  8. The growth in local government and police departments is a linear function of the growth in sales tax, which has grown to 10 percent and more in many places. Buying online, without paying sales tax, means as much as every tenth purchase is free for consumers. Put another way: For every 10 Walmart supercenters, 100 percent of the revenues of a single store goes to the government, which government does not have a single nickel invested in capital for that store. Imagine receiving all the revenues from a Walmart without having to own it, never mind not even having to pay the employees and all the other overhead, taxes, insurance, etc? Even though the government has no skin in the deal, it still can’t balance its budget, forever wanting to increase sales tax another penny.

  9. Squeeky, Why is Rick Perry going around bragging about all the high quality jobs he created in Texas? Actually, I read that about 45 percent of the jobs are high quality and the rest are not. Get an engineering degree or a medical degree of some type, and you will get a high quality job.

  12. If it helps any, Staples is closing 140 stores and Pearson (the world’s largest educational publisher) is losing 1400 employees. And yet, in my community, we just opened a Winco, five new restaurants and work is going on at what appears to be a big box store. We added two new car dealerships as well. Costco is always crowded as in Sam’s Club.

  13. Thank you, Grazie, mespo. GREAT piece. Our economy has been the best the world has ever seen. What has insidiously hurt retail is the creeping gluttony of govt. and sales taxes. Online shopping is creating a new generation of libertarians. One of the reasons our free market economy has been so successful is it is consumer driven. Times have been tough. I’m going to stay away from the politics of why times have been tough, but we can all agree they have been tough, particularly for the middle class. So, consumption is flat. People like to shop. I don’t, but most people still love to see, touch, the items they purchase. But, they don’t want to pay the high prices. So, they go to places like Best Buy, do all the tactile stuff, and then go home and buy it on Amazon. It’s tough for brick and mortar to compete w/ that 5% or more in sales tax. Now, being libertarian I say do away w/ the regressive sales tax that hurts middle income people the most, and create a more progressive tax. What does govt. think. TAX ONLINE! This beast the duopoly has created is morbidly obese and diabetic. It consumes more because it’s appetite is out of control. Online has created a new paradigm. We need a paradigm shift in taxation. It means much less govt. taking our hard earned money and a more equitable way of taxing us legitimately. FLAT TAX!

  14. Another thing to consider, online purchasing is easy, gives the mail delivery employees work and is a God send for the infirm or those disinclined to shop in person. I’m glad stores like Kohls are doing well, love them and will continue to shop there. I also like Aldis for produce and their meat is no worse than any other grocery store. For the really good meat and bakery, go to a butcher shop or bakery. Produce at farmers markets in small towns is best, the Farmers Market in Madison is pricey, which is too bad. Frozen produce at Aldis isn’t bad either.

  17. Squeeky, Dallas has really good high end shopping. More and more high end stores are coming to Highland Park Village and North Park. The top 1 percent is doing extremely well. It would certainly help to raise the minimum wage. Texas is doing well in the Obama economy, and no one cares there about the unemployed or barely employed anyway.

  18. Well, the main reason why sales are down is that most people have little money to spend outside of necessities. It is hard to do much besides survive when you work a 29 hour week at minimum wage or near. Gas prices are still way too high, relatively speaking.

    The banks and speculators suck off the money flow like ticks. Obama’s jobs he claims credit for have mostly been of the low paying kind. Student loan payments are another big drag. Obamacare doesn ‘t help when you look at the deductibles and when the employer mandate kicks in, katie bar the door.

    But, while the politicians and the courtier government employee class do not feel the pain, I don ‘t think things will change.

    Squeeky Fromm
    Girl Reporter

  19. http://blogs.hbr.org/2014/08/e-commerce-is-not-eating-retail/ “All of these issues point to one conclusion: Omnichannel retailers—those that seamlessly integrate the best of both digital and physical worlds at each step of the customer experience—are likely to enjoy significant advantages over retailers that try to pursue either one alone or both independently. For omnichannel retailers, websites and mobile apps are not just e-commerce ordering vehicles, they are front doors to the stores. Stores are not just showrooms, they are digitally-enabled inspiration sites, testing labs, purchase points, instantaneous pickup places, help desks, shipping centers, and return locations.

    Stores don’t necessarily need as much foot traffic as they have had in the past to succeed. If 20% of their sales are shipments from online orders to nearby customers, they are still valuable. That’s why so many companies that began as pure e-commerce plays have added physical stores, including Warby Parker, Athleta, BaubleBar, and Bonobos.

  20. Mark,

    Great article…. I read that the Big Box stores are becoming a dinosaur in retail strategy… Hence, more stores like ALDIs ….. Walmart seeing its profit margins erode since the dollar stores have gained a footing, are focusing on more neighborhood stores with smaller sales but a better percentage increase in profits….

    Penny’s is making a slow comeback, rebound…. They are doing better than expected….

    Sears, has disbursed its main product line craftsman to lots of competitors such as ACE etc…

    TJMax etc, I have to give mangment credit for its robust sales … When profits were sagging…. The CEO said no bonuses, no stock options for anyone until the stores turn around….

    In another management move…. Ford…. The last of the Fords in control took no salary or bonus until the mfg turned deficts into profits in the US…

    Sears is grasping but you have greed in control…

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