Slicing the Pie (Craig Douglass On Consumers)

Purchaser. Buyer. Customer. Shopper. All synonyms for consumer. A consumer consumes. So the act of consuming is consumption, in which the substance of a thing is destroyed, used up or transformed, recycled or reused as something else.

Consumption is also an archaic term for tuberculosis. Once called “the wasting disease.” But I digress.

Consumption of goods and services is dramatically changing. The traditional retailing business model — brick-and-mortar stores — is experiencing downward pressure on foot traffic, browsing and sales. The browsing is happening online. And online sales are increasing. But is that the whole mosaic? Or, just a small piece of the consumer puzzle?

Let’s see. In a recent op-ed, Vitaliy Katsenelson, chief investment officer of Investment Management Associates of Denver, highlighted three data points:

• Between consumer spending on smartphones and the services delivered through these devices, some $340 billion of discretionary income will not be spent this year on soft goods like shirts and shoes.
• Americans support over four times more retail square footage per person than any other developed country. (The question asked by Katsenelson is, “Are we over-retailed?”)
• Ten years ago only 2.5 percent of retail sales took place online. Today that percentage of total retail sales is 8.5 percent, a $300 billion incremental change.

But wait. That online sales stat represents less than 10 percent of total retail sales in this country. Where is the other 90 percent going?

There is no doubt that retailing as we have known it, shopping at a local neighborhood store or going to a mall-based department store like our home-grown Dillard’s, still commands the lion’s share of our discretionary dollars. Doubtless, too, is the fact that other purchases having nothing to do with being clothed or adorned, are getting a slice of the pie. And the pie is not growing.

Amazon’s 2016 sales were roughly $80 billion, or 1.5 percent of total retail spending, which is over $5 trillion. And consumer spending makes up roughly 70 percent of our economy. So why is traditional retailing feeling the pain?

Here’s why:

Americans are now spending available income on what I’ll call lifestyle support mechanisms. Witness the iPhone.

Apple sells, according to a report by CNBC, more than $100 billion “i-goods” in the U.S. Two-thirds of those sales are iPhones. A lifestyle support mechanism. Since Apple’s market share is estimated at a little under 45%, that means total smartphone spending, when adding peripherals, is approaching $200 billion annually.

Because consumer income has not changed significantly over the last 10 years (see “pie” above), you quickly see how spending on these types of lifestyle devices, and other gizmos, could impact retailing. Online and otherwise. And when it comes to soft consumer goods, coupled with the ever-increasing casualness of our society — I still prefer a suit and tie, but not as often as I once did — the need for retail space to inventory and display choices, diminishes.

There’s another irritant. The sales tax.

The delivery of core government services, the services most citizens expect and on which we rely, are partly funded at the city, county and state level by sales taxes. Sales taxes are broad-based and many voters by their local votes consider them a fair way to pay for capital improvements like jails and highways. The application of sales taxes, however, is not equal. And certainly not fair.

Online retailers do not pay sales taxes on goods you purchase through the click of a mouse (unless those online enterprises have a physical presence in the state).

Brick-and-mortar retailers should not have to charge consumers sales taxes on purchases if online merchants do not. It puts our domiciled stores at a competitive disadvantage. And it withholds our state and local governments’ rightful share of voter-approved revenue to help fund public safety, health care, infrastructure, education and more. In-state retailers and their brothers and sisters in government should push the issue.

Consumer behavior, exhibited by the movement of feet, is changing. Retailers, too, must step lively to keep up.

Craig Douglass is an advertising agency owner, and marketing and research consultant. He is president of Craig Douglass Communications Inc. of Little Rock. Email him at Craig@CraigDouglass.com.