A very interesting article analyzes some of the factors dragging down traditional retail businesses, and the cities and parts of cities that depend on them.
Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.
Americans’ consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on mobile phones. Today Apple sells roughly $100 billion worth of “i-goods” in the U.S., and about two-thirds of those sales are iPhones. Apple’s U.S. market share is about 44%, thus the total smart mobile-phone market in the U.S. is $150 billion a year. Add spending on smartphone accessories (cases, cables, screen protectors, etc.) and we are probably looking at $200 billion total spending annually on smartphones and accessories.
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Between smartphones and their services, $340 billion will not be spent on T-shirts and shoes.
But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and even a 3% rise in costs would be close to $100 billion.
Then there are soft, hard-to-quantify factors. Millennials and millennial-want-to-be generations don’t really care about clothes as much as we may have 10 years ago ... Consumer habits have slowly changed, and we now put less value on clothes (and thus spend less money on them) and more value on having the latest iThing.
All this brings us to a hard and sad reality: The U.S. is over-retailed. We simply have too many stores. Americans have four- or five times more square-footage per capita than other developed countries. This bloated square footage was created for a different consumer, the one who in in the ‘90s and ‘00s was borrowing money against her house and spending it at her local shopping mall.
Today’s post-Great Recession consumer is deleveraging, paying off debt, spending money on new necessities such as mobile phones, and paying more for the old ones such as health care.
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Understanding that online sales (meaning Amazon) are not the only culprit responsible for horrible retail numbers is crucial in the analysis of retail stocks. If you are only asking “Who can best fight Amazon?” then you are only solving for one variable in a multivariable problem.
There's more at the link.
I'd add several more factors to the author's list.
- Every retailer is basically offering the same goods. They're almost all made in the same factories in China, with just the brand name and perhaps some cosmetic features to distinguish them from each other. If you look on Amazon.com for examples, they're legion: an expensive, name-brand product, plus half a dozen ripoff copies, probably made in the same factory or one near it, looking identical to the first, but at half the price. Their quality may be lower (they may even be quality-control rejects from the first product's production line), but nowadays even expensive products are effectively throw-away items once they're out of their guarantee period. No-one repairs electronics anymore, except at charges that are often more expensive than replacement costs. If you can buy the same thing almost anywhere, why should you care where you buy it?
- The assistants at many retailers are abysmally ill-informed, often slovenly in their habits (i.e. needing a shower or shave or haircut, or to change their clothes), and frequently not motivated to sell. They appear to be there simply as warm bodies going through the motions. I've lost count of the number of times I've asked a salesperson about a feature of a product I'm interested in buying, only to find that they know nothing about it, and must consult the manual - something I could easily have done for myself. I've even looked up information about it on my smartphone, while they were looking for a supervisor who proved to know as little as they did! If I'm expected to pay a premium for the "benefit" of having trained salespeople to assist me, I want them to be trained, and have the expertise I expect. If they aren't and/or don't, why should I waste my time there?
- Many stores no longer keep inventory on hand of the products I want. I don't expect a shop to tell me that this, or that, or the other thing is what I need, but they don't have it on hand. "Don't worry, sir, we can order it for you! It'll be here next week!" Yeah, sure. I can have it delivered free of charge within 48 hours by shopping online. Why should I let the store order it, and have to make a second trip to pick it up, and pay for shipping while I'm at it? I'd mind less if the problem was limited to rare, low-demand items, but I've found it in high-demand stuff as well. If you know your store can sell ten widgets every week, why keep only three in stock?
- The inventory problem is made worse by ordering on a higher level, rather than according to local tastes and needs. Bookstores are a classic case. A store manager can no longer order what's popular among his/her readers. They get shipped a selection of books chosen by managers in a national or regional center, which may be completely inappropriate for local customers. (Try selling lots of books on social justice and LGBTQWTFEIEIOYGTBSM issues in the area where I live. Good luck with that. Equally, try selling lots of books on longhorn steer ranching in New York city.) When they don't sell, very often the managers are blamed (and sometimes fired), rather than executives realizing they'd been sent goods that weren't suitable for their local market.
- Most retailers no longer stand out from each other in any meaningful way. They stock the same goods, they charge very similar prices, and they offer little, if anything, to make it worthwhile to shop at their stores rather than their competitors. If that's the case, why should I go there at all? I know a few stores that stand out from the competition because they have genuinely knowledgeable, enthusiastic staff who go out of their way to help customers. Others make a real effort to look different, to display their wares in ways that highlight their usefulness, or do other things to make a visit to them genuinely interesting. Those businesses get my business. Those who don't bother . . . not so much.
I'm sure my readers can offer other thoughts about why traditional retail outlets are so deep in the doldrums these days. What say you?