Stop the presses! The so-called “retail apocalypse” may not ALWAYS be the result of Amazon and other e-commerce brands wrestling traffic away from brick-and-mortar stores.
Now, to be clear, we at ESP are creating a Retail Greatness movement to empower brick-and-mortar retailers to thrive in an online buying world, and nothing in this article diminishes any of that. However, not every retailer is shrinking due to online (our customers certainly are not), and many others as you'll see in this article.
Some have pointed out that this apocalypse is just beginning, that store closures have been outpacing store openings since 2015. But if you look inside the numbers, much of the shuttering may have more to do with finances unrelated to sales.
Retail bankruptcies have been rising, it’s true. A recent article in Forbes magazine online edition claims that 55% of retail closures are due to bankruptcy. This means 45% are closing for other reasons. Some brands may be doing more online business, others may be simply downsizing unprofitable footage.
Debt is a BIG issue
Look at the evidence, some of the most significant recent bankruptcy filings have been large, multinational brands. Although lagging sales have surely contributed to their troubles, it’s debt that is crushing their bottom lines.
Leveraged buyouts are claimed as the cause for these debt issues. In the next five years or so, some of the biggest risky retail debt is supposed to be due. So brands are scrambling to dump unprofitable locations. But the demand for risky retail debt is shrinking, leading to fewer attractive buyout opportunities and leaving large retail brands stuck without the ability to refinance.
Too many stores
One problem for some retailers is being “over-stored”. When retail is hot, there is a rush to acquire floor space. But overdevelopment can produce huge debt loads while leaving you with footage that underperforms competing with e-commerce brands. Even before the e-commerce revolution, many U.S. retailers were considered “over-stored”.
This presents an opportunity for you mid-size and smaller retail chains! Healthy retailers are hanging on to their stores for the most part because brick-and-mortar shopping is not dying but transforming.
Some brick-and-mortar categories are still strong
According to retail property management firm JLL, mass merchandisers, convenience stores, and supermarkets among others are opening plenty of net new retail locations. JLL says that “apparel and electronic stores will account for nearly half of 2017 closures”. You can see in the image below that department stores, discounters, and grocery account for only 20% of total store shuttering this year.
Data source: Credit Intell, JLL Image source: Forbes
E-commerce is NOT crushing in-store sales
Online shopping is definitely taking a bite out of store sales in some categories. But according to CNBC, “Sales at online retailers declined 1.1 percent in August , the biggest drop since April 2014”.
At the end of 2016, Pew Research claimed that “64% of Americans indicate that, all things being equal, they prefer buying from physical stores to buying online”. We know that online and physical retailing are not equal...but...that tells us consumers still enjoy the brick-and-mortar experience.
And, in fact, over 93% of sales are made IN YOUR STORES.
Data source: ICSC Research Analysis of U.S. Census Bureau quarterly e-commerce report Image source: Forbes
Online security concerns
Cybersecurity for one is a big concern for shoppers. For example, around 30% of consumers said they didn’t plan to shop online for the 2017 holiday season because of concerns about how well-protected online shopping sites are from security threats, according to a study by cybersecurity firm Sitelock.
Any slowing of online retail sales provides an opportunity for brick-and-mortar teams to get customers in their stores and keep doors open.
Make shopping experiences great again!
Consumer confidence is high. It’s been gaining since early 2012. And U.S. median household income has risen for the third straight year.
So, if you play your cards right, you can lift basket size, improve profits, and achieve growth while the “apocalypse” happens around you!