Too Much Too Much (Gwen Moritz Editor's Note)

by Gwen Moritz  on Monday, Apr. 17, 2017 12:00 am  

The Atlantic published an interesting article online last week called “What in the World Is Causing the Retail Meltdown of 2017?” The subtitle to Derek Thompson’s well-researched report assures us that “the reasons why go far beyond Amazon.”

Those of us who follow Arkansas businesses closely are certainly aware that our homegrown retailers have had a hard time of it. Dillard’s has had six straight quarters of declining same-store sales in its department stores. Wal-Mart’s domestic sales are inching upward, but it has spent years and billions of dollars off the bottom line trying to figure out the key to online sales, and it is still reporting its e-commerce results in terms of percent growth rather than dollar signs. (The industry analyst eMarketer estimates Wal-Mart’s e-commerce sales in 2016 at $14.4 billion, which is less than 3 percent of its total revenue and less than a sixth of Amazon’s comparable figure.)

But Wal-Mart and Dillard’s aren’t the retailers that are really on the ropes.

“There have been nine retail bankruptcies in 2017 — as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy,” Thompson ticked off.

Meanwhile, Amazon’s sales in North America “quintupled from $16 billion to $80 billion” between 2010 and 2016, which Thompson put in meaningful context by pointing out that “Sears’ revenue last year was about $22 billion, so you could say Amazon has grown by three Sears in six years.”

But, as promised in the subtitle, Thompson explained that online competition isn’t the only change in the retail landscape. Many stores are closing because the malls that surround them just aren’t attracting the kind of traffic they used to. (Here’s how William Dillard II put it in February: “Our operating results reflect another quarter of mall traffic declines from continued retail industry challenges.”)

Now, it seems obvious that this would be related to the rise of online shopping — more shopping done from smartphone or laptop means less done at the mall. But Thompson argues that the impact of online shopping has been compounded because “America built way too many malls” in the first place — 40 percent more “gross leasable area” in shopping centers per capita than Canada, five times more than England and 10 times more than Germany. Excess capacity becomes a burden really fast when mall traffic declines by 50 percent, as it did in 2010-13, and then keeps going down.

Most interesting to me was the third factor Thompson cited: “Americans are shifting their spending from materialism to meals out with friends.” Data from the Federal Reserve Bank at St. Louis certainly supports the idea that spending at restaurants has grown faster than general retail spending, especially since the Great Recession, and travel and lodging are booming while less is being spent on clothing.

Thompson plays up the idea that young consumers are “driven by the experiences that will make the best social media content” — beach pictures and food porn posted on Instagram. Since it wasn’t supported by the kind of statistics he used elsewhere in the article, I found this to be his weakest explanation.

He left completely unexplored the fact that more young adults are living with their parents longer, delaying marriage and all the shopping associated with setting up housekeeping. Nor did he discuss the impact that other rapidly increasing expenses — health care and student loans — have had on disposable income.

While Thompson’s topic was retail, I can’t help wondering whether the fact that most of us already have too much stuff is cutting into the appetite for more stuff. My son is living in a rent house with some buddies, and I’m not sure they have a stick of furniture, dish or pan that was purchased new.

And it’s not just for kids. My husband and I prowl the estate sales almost every Saturday morning, and it’s now hard to imagine paying retail prices for flower pots or tools or costume jewelry. For household items, Craigslist, which supplanted newspaper classifieds, now has competition from local resale pages on Facebook — and the market is so glutted that prices are rock-bottom.

Statistics on the resale sector are hard to come by, but it wouldn’t surprise me if one of the biggest competitors for retailers is the stuff they’ve already sold.


Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.

 

 

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