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

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