Physical Retail Will Continue to Collapse
2017 will see the continuation of the collapse of physical retail. There will be many more store closings this year following the recent announcements from Macy’s, Sears, and K-Mart.
This is something I have been forecasting for years. Back in January 2009 I wrote: “Retailing is in a free fall. There will be numerous bankruptcies in the U.S. and around the world” Of course in the Great Recession this was easy to see. In January 2011 I posted the forecast that: “The bricks and mortar retail industry and therefore retail real estate, will undergo the greatest transformation in the next 10 years since the introduction of the automobile”
Obviously on-line retailing is a major reason. When Amazon launched Prime in 2005 it was the giant killer but most people didn’t see it at the time. Now of course Amazon, and Prime, is not only eating retailers in all categories for lunch, it is at the forefront of streaming, voice interface and cloud storage. Amazon is not only continuing to grow, it is profitable when it wants to be.
Another major reason is that the developed countries of the world are rapidly moving from an ownership to a rental society, forecast here in October 2010. Products are becoming services. One doesn’t need to rent a DVD when Amazon Prime video, Netflix, Hulu and other services provide it for a subscription fee. Same thing with CDs and streaming.
One of the things we learned during the Great Recession is that it was the “too much stuff recession” that I wrote about when I had a column on Oprah.com. We all looked around our homes and saw DVDs not yet watched, books not yet read, clothes never worn, and stuff that made us wonder what we were thinking when we bought it. So we got rid of it.
The number of thrift stores in the U.S. has grown dramatically since the beginning of the “too much stuff recession”. Boomers are downsizing and Millennials are buying much less stuff that prior generations have. When was the last time you went into a thrift store or a consignment store? The customers are from all walks of life and class levels.
“Less is More” and “Thrift is the New Cool”
These two dynamic economic trends forecast here in July 2010 that have been reshaping the buying habits and therefore the physical retail landscape since 2010.. People now have developed the mindset of buying what they need and moving away from what they want. We want less, we buy less and therefore we spend more money on experiences. Less is more. The “thrift is the new cool” kicked in during the Great Recession and has only gained momentum. There are now sales events going on all year round. It is the thrift stores, the dollar stores and the discount stores that are doing well. Department stores, which served the “middle” are the ones that are closing.
Over Retailed
The U.S. has far more retail square footage per capita than any other country in the world. We are simply over retailed. This will mean several things that will become clear in 2017. First, stores that serve the middle, such as the 20th century model department stores, will continue to close. Second, the metric of “same store sales” will become much more important as the simple growth through expansion of outlets is a shrinking option. This will also include the restaurant sector.
There will be retail and restaurant chains that get hot and expand, but now that it is not only a zero sum game, but a negative sum game. Any hot concept that goes into rapid expansion will mean that more established competitors will suffer.
Another clear symptom of the country being over retailed is the on-going closure of outdated, suburban oriented shopping malls that were built in the last third of the 20th century. Many of the chains that were considered anchor tenants are in rapid contraction. Whenever a new mall is built it will almost assuredly trigger the closing of an older, existing mall. The social constant of teenagers hanging out at malls will continue but now there are all the on-line social options on-line to replace or at least minimize that social right of passage.
Of course another obvious reality is slow population growth now versus decades ago. Many retail growth models were designed to take advantage of populations growing at 3-6% annually, which is no longer the case.
Highest Use
Highest use is a real estate axiom that the greatest economics for real estate is use that provides the greatest value. For retail real estate this now means a recasting away from retail to other uses. When the numbers of big box store chains are shrinking, the highest use of an empty big box space is no longer finding another one. New uses must be found.
As a co-founder of This Spaceship Earth, Inc., a non-profit that faces climate change, I advocate that the highest use for an empty big box store would be a vertical garden. There would be multiple crop cycles per year rather than one, particularly in cold climates. Growing inside dispenses the need for pesticides, and the farm to table and organic food movements can now exist in any urban or suburban environment. That is a new higher use.
So a smart, face the future suggestion is to have those old, shuttered anchor stores become vertical farms or life-long learning centers for adults needing retraining for the new careers and automation infused reality of the economy of the near future.
That golden, post WWII era of seemingly endless physical retail growth in the U.S. can now only be viewed in the rear view mirror as we hurtle into our new future.
