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.
. . .
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.
. . .
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?
Peter
20 comments:
i say you hit it on the head. i'll even pay more to buy my widget local, but not if the staff act like they are doing me a damn favor by taking my money. i haven't been in a walmart in about a year. but i go to a local auto parts store, that i've seen complaining in the local paper about big box stores, and they don't even have standard heater hose in stock, nor a whole case of any weight oil. pitiful. how you supposed to help people like that?
Online I get reviews!
It’s often faster and cheaper for me to order online than drive to a store, find the part, and pay for it.
And I usually know more about the part than the sales person.
When appropriate I’ll pay a premium for ace hardware because it saves time.
I do have a bone to pick with the linked article. A smart phone is not a necessity. It is a luxury item. The problem is that people (including myself) have become addicted to them. Still, smart phones weren't even a thing 11 years ago. I managed to live more than 40 years my life without one.
You beat me to the punch on 2,3,and 4, but I'll add another few that have only come up 300 times personally:
* The Village Idiot "We don't sell many of those" Gambit.
In this game, you ask for something they should have on the shelf.
"We don't stock those, because we don't sell very many."
The complete irony explosion that should occur inside the head of anyone with an IQ over 80 never happens with this level of flunkie/clerk/manager/store owner.
The concept that as long as they stock none, they'll sell none, never occurs to these geniuses, with a predictability and frequency that induces bleeding out of the ears in persons with a normal IQ and recourse to rational thought.
When such item is moreover a specialty item, and one doesn't find it even at a specialty brick-and-mortar store, they clearly don't even know their own business, and one is yet again forced to direct more local dollars to the widget-droids of Amazon, or such-like.
I'm not positive, but I'm fairly certain the Monty Python Cheese Shop Sketch was supposed to be parody, not a chapter in the retail business operations manual.
https://www.youtube.com/watch?v=B3KBuQHHKx0
* The "It's Not In Season Now" Excuse
Thus one can only find heaters for 5 minutes heading in to winter, (at which point they'll be out of stock again for 11 more months, no matter how long and cold winter is) and fans and air conditioners for the month before it gets hot.
And at no other time.
So if, for example, you have a small space heater for a cold spot that gets used most of the year, and it craps out in July, you'll only have to wait shivering for four or more months to replace it. Probably with an even cheaper and sketchier model than the last one, because someone found a way to make a product even less reliable, for a savings of 0.0001 cents per million/per ton, by scrimping on one of the three to seven vital moving parts or connections that make the entire item a go/no-go while still barely qualifying for a UL rating, and only marked up 25% above annual inflation from last year's model.
If it's a switch or contact that would have a million use life-cycle if made of even the flimsiest metal, it will inevitably have been replaced with plastic, synthetic rubber, or congealed cheese whiz, depending on what was in stock at the #37 Best Product Factory in Sum Flung Poo province that week.
The savings of a thinner, flimsier, shoddier item will be completely offset by the inclusion of roughly 42 pounds of extraneous plastic, polystyrene foam, NIJ Level IV-rated box sealing tape, plastic shrink wrap, bubble pack, wadded newspaper, cardboard, wire and cable ties, and 200 heavy duty metal staples, requiring the possession of the Craftsman $8900 Master Mechanic 3,000 piece tool set, the Jaws Of life, and an oxyacetylene cutting torch to successfully extract a $5 fan from the box, as if they were packing and sending vintage Renaissance blown glass vases from Florence to the Andes on a one-eyed pack mule with epilepsy and three uneven wooden legs, will have been completely lost on every level of the process from concept to delivery.
(cont.)
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* The "We Don't Have Those Anymore" Dodge
In this version, you go to one of the fewer stores that carry movies, television shows, or music, which should be their bread and butter, and they don't have, say, a copy of ________________.
It could be anything, but even if you asked for The Eagles Greatest Hits 1971-1975, Michael Jackson's Thriller, Hotel California, Led Zeppelin's IV, or Billy Joel's Greatest hits Vol 1 & 2, let alone Avatar, Titanic, Avengers, Gone With the Wind, or Citizen Kane.
Entire bands with 10, 20, or more Billboard Top Ten hits have disappeared as if they never existed, entire movie genres have shrunk to three or four examples, but they will have 2000 assorted rap/hip-hop artists you never heard of, and the regular, deluxe, and DVD/BD/Digital download/Special Feature editions of movies that closed the week they opened, every episode of Hannah Montana, Cake Boss, WWF, and Thundercats, and literally yards - if not furlongs - of T-shirts, beach towels, toys, games, tsotchkes, posters, key rings, magnets, lunchboxes, tennis shoes, and five floor bins the size of Hesco barriers in Afghanistan full of other fanboy crapola.
But they "don't have room for" y'know, actual movies, TV shows, and music CDs that have actually been seen or heard by anyone over the age of 12, because yet again, "there's not much call for that, so we don't stock it".
Just for fun, take AFIs list of the 100 Greatest Movies, or Billboard's Top-Selling Albums of all time, or the longest-running highest-rated TV series since ever, and see how many of them they don't have.
If you're still not suicidal, ask the store help how many of them they've ever heard of.
You'll probably want to stop when you get to about 90% of them.
Duluth trading Co. comes to mind as an exception. Quality stuff, attention getting catalogs, and helpful staff.
I had not thought about where the money goes rather than to the local retailer before.
In 2004 the medical industry took 4% of the GDP, today it's above 17% of the GDP, that's a lot of cash that's not going to tee shirts, shoes & a meal out.
Then there is the on-line shopping, like was pointed out the local stores don't stock what they used to as a LOT of people order from home on their smart phones and it arrives in 2 days.
Keeping stock on the shelves takes money, even Walmart is reducing the variety of what's on hand. If you pay attention they periodically come in & move all the shelves around, the aisles get wider & the amount of stock on hand gets smaller.
Hired help in the stores that "know about" what they are selling costs money, just like having a dozen of the widgets on the shelves costs money.
Back to the cell phones & the modern computer age lifestyle. Remember the video stores? Blockbuster or a local or even the grocery store had a video selection you could rent for the evening.
Redbox, Netflix & the streaming services changed all that, just like Amazon changed retail.
All of the above, less free cash to spend and the spread of the information age/Smartphone in every pocket has changed our world.
Today if I want to see the movie "High Road to China" it's not as easy as it was. The video store is gone, if it's not stocked by one of the streaming services or available at Redbox you have to go on-line to find it. Well, maybe your local library has a copy..
You can't even find out if Netflix has it on DVD unless you join up! But you can go on-line and buy a copy.
I've several movies in my collection that I wanted to see again and buying a used copy was the only way.
I have "High Road to China" and "Sunset" (with James Gardner) on my Amazon wish list, not pressing but sometime when a copy is chaep enough I'll buy it.
"Our world" has changed... Smart phones are as necessary as a car is today, medicine is an expensive industry and you can get most anything you want delivered to your door the day after tomorrow.
Then again getting it the day after tomorrow is often the only way you will get it.
Aye, Rob. Several time I have *tried* to 'shop local' only to find all I was doing was wasting my time & motorfuel. So now the local retailers aren't getting the money as they failed me before. Unless it's something I truly need RIGHT NOW and KNOW they have... I can order it and be DONE.
I've tried. Two weeks ago, I needed some screws I didn't have. Ordinarily, I'd go online to Bolt Depot, put about twice as many as I might need in bag and check out. Cost per screw would be about 10 cents, but my order of 8 screws would cost me "a few" bucks with shipping.
Now there's a True Value hardware that just opened nearby. 1/10 of the distance away as Ace is and similar fractions to the big box Home Depot / Lowe's / the Borg stores. "Let's give them a chance" I says.
They had the screws. At 50cents each. So that my four screws cost me $2. No savings over Bolt Depot except for being able to put things together sooner.
All of this is well and good, but there are positive things you can do to buck the trend;
When you find a local business that offers actual knowledge, make damn sure you buy from them even if it's a little more trouble. I will go out of my way to spend money at my local (family owned) Pharmacy and locally owned (if a national franchise) hardware store, because if I never have to deal with CVS or Home Despot again, it will be too soon.
Sometimes there is no local or knowledgable choice. But some chains are better than others. I used to work for Suncoast (the video arm of Sam Goody). As a rule Suncoast employees knew more about movies than the 'electronics section' clerks at Walmart. Also, at least when I STARTED working for them, Suncoast could order pretty much anything 'in print', and Walmart couldn't. Management screwed that up, as they eventually screw anything up, but for a while Suncoast was a clear winner.
If you aren't willing to pay for good service, you won't get it.
Gotta disagree: you state that online sales are not the only culprit dragging down the brick and mortar biz. It may not be the ONLY, factor, but it is 99.99999999999999999% of the reason for the 'retail ice-age.'
Rounding up, online sales are THE SOLE reason for brick and mortar woes. Why would anybody want to drive down to Sears and pick up a hammer and screw driver? There's gas getting there and back, parking, the time it takes to do all of that, dealing with a pesky and smelly retail clerk, the irritations seem endless. Why not just log on to Amazon.com, click in the search field for 'hammer/screw driver,' another few clicks and it appears on your doorstep like magic.
Much like churning your own butter: sure, back in the day there was no alternative. Now there is. Life marches on, and buggy whips are hard to come by. As are Underwood typewriters.
I have enough clothes and shoes. I have a flip-phone. I have no Apple anything.
My wife worked for a Hilo Hatties Hawaiian store for a few years. She said it was an exercise in frustration - the retards at corporate HQ sent her store a combination of what sold at the main store and whatever they couldn't sell at the other stores. They never sent her more of what sold at her store, and as far as listening to the manager on the spot... fuggetaboutit. She finally gave up and quit, the store closed shortly afterwards.
I see the same thing happening to the local B&N bookstore. Knicknacks, froo-froo, toys, a coffee shop and some books in the back. "That other stuff has a much higher profit margin!" Yeah, but if you don't carry the books that I want, you have no chance of selling me anything else.
Sometimes when we want to support the local economy on something, we may take a couple days trying to find something that you'd think would be in the store.
But nope. So online we are forced to go.
Whenever we want someone with knowledge, we often go to a locally owned Ace/TrueValue Hardware store.
There are several locally owned grocery/hardware type businesses that we enjoy shopping at.
I agree that most young people don't buy as many clothes. I guess that's why their pants always hang around their knees, etc. But they must spend a bit of money when they buy sports related stuff?
But the local SEARS store just closed. I still remember getting the big DREAM catalog when I was growing up and looking at all the stuff inside. I'm not quite old to remember buying a house from it, though.
Some stores have changed, but a lot of them are too little, too late, like Blockbuster.
I don't have a flip phone anymore, I have a computer in my pocket that I can make phone calls on.
My roommate tells me that the USPS is subsidizing mail order from China. I forget the details, but he says they are paying pennies on the dollar for shipping small packages. He buys a LOT of stuff from China.
For that matter, Fedx and UPS trucks are constantly passing the house, along with a host of (mostly) unmarked contract delivery vans 7 days a week. USPS Jeeps are also seen 7 days/week. LOTS of product is being delivered daily, so it's easy to imagine why brick&mortar stores are hurting.
It's the loss of local jobs that hits the hardest.
A local/regional old time hardware store chain is in the process of closing down. Orchard Supply Hardware was the biggie in the Bay Area, but they missed the Big Box expansion of HD and Lowes type stores. Probably lack of finances to expand, I suspect. They tried, but they got overshadowed by the bigger chains.
They were the real thing back in the 70's when I first saw them. Half an isle of nothing but hammers was impressive. More hammers than a Harley mechanic's toolbox! The other half isle was files of every type. That all changed as they tried to compete with the home builder market. Sad.
I do run to my local Ace hardware store when I can instead of Amazon. Because selection is very limited, but the staff are really knowledgeable and friendly. When I say "I need to do X", and they'll find a way to do it, explain how, and get the parts I need for that.
Inventory is an issue; if I need 10 corner braces, they'll have 4 on the shelf, usually with sun-faded labels. But if I get all of them, install those when I have time, and come back next weekend for round two? They'll have 4 new corner braces with brand-new price tags waiting, and two more in silver instead of goldtone.
On the other hand, they have no shame about leaning back and saying "Well, ma'am, corporate thinks that one is the best fire ant killer, but everyone 'round here finds this here is the best one. So I'd suggest you try it first." (It works a treat, too.)
If more stores were like that, I'd do a lot more local shopping.
I'm also reminded of Radio Shack. Boy, they were the thing in their day, but once they stopped doing what they were famous for - because buying ready made was quicker, or people stopped wanting to do it themselves - that's when the writing was on the wall for them.
Too bad they didn't start stocking computer parts. But then TigerDirect and CompUSA are no longer either. Well, they died in NC. And when a computer store dies in the middle of a mini-Silicon Isle or whatever the Raleigh-Chapel Hill-Durham Triangle was known for, then it is bad.
There are still people who would rather buy parts off the shelf, but you have to go to the internet for that. Less overhead than brick and mortar.
I buy a lot of stuff online, partly because I live in a small town a distance from metro areas and the local stores often don't have what I want and can't or won't order it in for me. The savings also appeal to me---I'm quite poor.
inventory from afar is a problem. wanted a thing the particular store is known to carry. asked for it to be ordered but was told the locals had no influence. it is all done from central office . and the manager never knew what was coming until it was delivered.
that never worked in the soviet union--people who were harvesting had to wait months for a tractor part. meanwhile they had plenty to eat but people in the rest of the country were going without. a terrible system.
many years ago had a baby in spring. in october went to buy a snowsuit. store was full of bathing suits. it was snowing outside. clerk said order from catalog. why didn't i get one earlier. babies grow and i didn't know what size snowsuit to get earlier.
i said you know there is a blizzard outside? shoulder shrug, we don't have any in stock.
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