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. Leejcaroll, I appreciated your very reasonable reply. I think your bringing up ACA, as opposed to strictly the mandate, is actually more germane to the dilemma faced by big brick and mortar stores such as Sears than you might think.

    The people who use those outlets are being financially squeezed in every manner; loss of jobs to off-shoring, policies of government austerity, low interest rates affecting pension programs, many homeowners taking a 30% or greater hair-cut in the equity of their homes, and so on. The requirement for this hard hit segment of society to suddenly make hefty -relative to their income- monthly payments for health insurance is certainly another one, though it has not yet had time to fully gouge (sorry :-)) affect that part of the public. Yet another – not directly related to income – is a palpable sense of gloom and doom or instability in general; instability in weather patterns, in gas prices, in constant wars and spying on citizens, and militant police forces, and the abridgement of civil rights, and on and on, that is affecting all levels of society (as evidenced by all the doomsday and survival TV programs) and keeping people home.

    I might be convinced that virtual commerce was the culprit except as Mark reports, there are smaller physical outlets such as T J Max that are apparently doing quite well by giving bargains not found in the larger stores and that makes sense if the problem is one of stretching dollars. At most, ecommerce and perhaps particularly it’s tendency towards competitive pricing plays a role in the problem, but it seems arguable that it is not all that great a one.

  2. Funny how big banks can make all the profit they can squeeze, legally or illegally and they are still have solid buildings, offices and ATMs. You could do without banks before you could do without food and clothing stores.

  3. I don’t see it. Walmart is as busy as ever. Some stores, admittedly are slow and could have to close or be sold and reinvented. If its unfashionable for stores to make a big profit and be taxed more, that might be what you see in the numbers they report.

  4. Brooklin don’t want to veer off from the subject so I will not point out the ways you are wrong on the ACA.
    Don’t think corporations need any devices to help enrich themselves. The government has been happy to do that for way too lonog. (But that is the system and even SCOTUS thinks corporations should count more then the people.

  5. @rafflaw

    Just FWIW, I don’t think I am being censored when a comment goes to Spam Land. Everybody here, including people I vehemently disagree with, have always freed my comments when asked, if they see my request.

    Squeeky Fromm
    Girl Reporter

  6. Leejcaroll, it’s true that a side benefit of ACA is to sweep hapless people under the rug with an Orwellian law that they must purchase expensive (for them) policies that pay out virtually nothing for their care until they meet a draconian minimum of 5 thousand dollars or more (and then they have to start over again each and every year), and this side benefit (not to them, however) is that they no longer perturb the conscience of those more fortunate who can afford more useful insurance policies. Moreover, I don’t think this extraordinary way of brushing the problem under the rug was accidental but rather a coldly calculated political “side benefit” calculated by the insurance industry that wrote the legislation.

    But my swipe at ACA was purely on the mandate and the possible other areas where the government may now be induced by precedent (and by lobbyists) to use the device to help private corporations enrich themselves at the public’s expense.

  8. One piece of evidence that a comment is not censored is the amount of time between when the comment is posted and the fact that it does not show up. It is rather instantaneous. If there was censorship it would take time for a person to discover and review the post in order to decide that it is unsuited for publication.

    In the case of it being instantaneous, it certainly shows that it is a wordpress system action. The website does automatic shunting of certain posts based upon the use of profane words and having more than two comments, the wordpress system checks each article to see if it scores high enough on a spam check and shunts it to “spam”.

  9. John,
    I found yours and one from Squeeky in the spam filter. And yes it is still insulting to claim censorship.

  12. Darren Smith,

    As you have effected such in the past, can you resolve the missing post dilemma here. Censorship is the continuing perception, as “insulting” and unfortunate as that appears. The following is the site response:

    “Duplicate comment detected; it looks as though you’ve already said that!”

    Thank you (if apropos).

  13. American-Americans want freedom, not more tax revenue for “government services” and, most “sales representatives” or “experts” (Bernie Madoff comes to mind) in the “financial industry” have a much better grasp of “how to win friends and influence people” than they do of the unpredictable, incomprehensible and indecipherable market dynamics and force permutations, while the author would have us believe he can predict states of environmental nirvana and natural disasters (which, even for humans with superior cognitive processes, are unpredictable) with accuracy sufficient to rest an entire estate on his edicts as he laments the evolutionary metamorphosis of a capitalist organization that is normally a target perpetually in the cross-hairs of his ideological weapon of invective against that incredibly evil, yet oddly natural human endeavor, aka business, called capitalism (pejorative, to be sure) as technology predictably and inexorably advances and humans take advantage of the newly available facility and convenience of staying home to accomplish routine tasks such as obtaining goods and services rather than inefficiently expending the time and effort required to transport oneself to multiple emporia through the civic maelstrom and human “rat race.”

    Is this the nascent phase of the gathering campaign to preserve and resurrect that which has evolved out of existence (can you say dinosaur or “too big to fail,” the sequel?) by irrationally and incoherently sentimental environmentalist (i.e. immutably indoctrinated cultists of the Green religion) zealots?

    The only constant is change.

    The reader should change the page.

  14. Zappos makes it incredibly easy to return goods, they send you a prepaid label and you can have USPS come directly to your door to pick up the package, no need to even go to the Post Office, another chore I used to hate, lines, lines, lines. I adore my postman and UPS delivery guy. FedEx not so much.

  15. Nick. That is the case with Amazon. Because there is what is referred to a significant nexus, that is having retail locations, warehouses, corporate offices, etc. in the state the consumers there are required to pay state sales tax.

    Anonymously Yours, yes there is the use tax issue but I am greatly surprised this has not been declared unconstitutional because the use tax is directly the result of an interstate commerce purchase.

    The sales taxes in many states are purely ridiculous. Some cities here have a combined state/local sales tax rate of 9.5%. And, a few places stick it to car rentals and hotels up to a 30% tax/fee because the belief is that they can screw the non-resident and make them pay a great proportion of the city’s tax revenue. This is because the non-resident doesn’t vote in that city and the politicians believe it is more palatable. So for me it’s just as easy to go across a city line and stay in another town.

    1. Darren – Arizona charges a sales tax on online purchases. And they do collect it from the online retailers.

  16. I’m actually an etailer of leather goods. Believe it or not something like only 6% of retail sales happen online. Brick and mortar stores still offer their customers the convenience of easy returns and the fact that the product is backed by a local merchant who wants to maintain a good name. Still the retail environment will change, just like the malls beat Main Street, big box stores are crushing malls. This creative destruction is ultimately good for our economy as we utilize fewer and fewer resources to provide the desired retail services demanded.

  17. Squeeky, I like to read Coulter but have a problem watching her. She’s way too affected for me. The same holds true for Peggy Noonan. Let me know your opinion on the book when you’re done.

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