Retail Apocalypse 2020: Not As Bad As 2019, But Not Great for Either Profit Or Planet
The retail apocalypse is upon us: Department stores were the worst sector on the Standard & Poor 500 in 2019, and the worst performers in that venerable stock index included Macy’s, the Gap, Kohl’s, L Brands (parent company for Victoria's Secret and Bath & Body Works). and Nordstrom. This year is expected to usher in at least 2,200 physical store closings in the U.S. -- on top of the 23,164 U.S. retail outlet closures we've seen since January 1, 2017.
Retail sales haven't gone down -- according to the National Retail Federation, Americans are still spending more each year than they are the year before. It's just that Americans aren't doing enough shopping in physical stores to justify the overhead costs.
Part of the problem is that there were too many physical stores -- "America is over-stored" has been received wisdom in retail reporting for at least three years, and we still will be over-stored at the end of 2020.
Part of the problem, however, is that mainstream physical retail doesn't make sense. By and large, the consumer experience is still rooted in a pre-internet paradigm.
Here's an example drawn from personal experience: When my daughter went back east with her grandparents in August 2019, I packed her a wardrobe of sundresses and bike shorts, but apparently the cotton sundress fabric was too heavy for Virginia's muggy weather and so my mom went to Target to find another, lighter sundress. Literally the only warm-weather item still on the racks, in Tidewater Virginia in August, was a t-shirt; everything else was geared for an autumnal back-to-school season. The biggest advantage a bricks-and-mortar outlet could have is the ability to meet an immediate shopper need, but retail buyers are still hewing to the merchandising cycles of the pre-climate-change 1970s.
We have two generations of consumers -- Gen Z and Millennials -- who have grown up with one-click ordering as a shopping default. For them, a normal consumer transaction is frictionless, customizable, high-touch, and meets the consumer's needs on the consumer's timeline. You want to know why Amazon's clothing business is growing? Because you can order a child's snowsuit for next-day delivery in February or order a maternity swimsuit for next-day delivery in August. Contrast that with the picked-over racks mid-season in any physical store.
In the holiday 2019 spending frenzy, online sales rose 14.6% to $167.8 billion. Total retail sales growth, by contrast, was 4.1% to $730.2 billion. Four-point-one percent of $730.2 billion is still approximately $29 billion, and $29 billion is objectively a larger number than the $24.4 billion gain that online sales made. But not that much larger -- and there are two other important takeaways here. The first is that online sales growth over the holidays was more than triple all retail sales growth. And the second thing to notice? If you take away the growth of online sales ($24.4 billion) from the total growth of all holiday sales ($29 billion), that's only $4.6 billion gained among offline retailers.
Obviously, offline shopping isn't going away. But it's worth noting where the growth is happening.
We're at an interesting point in retail -- too many stores, a real wallet hit related to tariffs, an increasingly persistent drumbeat to reassess both consumption patterns and production methods. For publicly-held retailers, beholden to investors who want to see double-digit growth every quarter, reckoning with the cultural headwinds while producing Street-friendly results is a formidable challenge. (Same goes for privately-held retailers with hands-on investors -- RIP, Brandless) It will be interesting to see what these companies do in an effort to appease both investors and customers this year.
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Other fun reading:
Fashion Week Is Simply Not Sustainable -- "Runway shows create but a sliver of the environmental impact of the fashion industry, but they represent everything that is wrong with it. They’re inherently wasteful, with glossy sets built, torn down, and landfilled after a ten-minute spectacle. Attendees fly first-class from fashion capital to fashion capital, where they jump into black cars that ferry them around, leaving trails of disposable water bottles and gift-bag swag behind." (The Cut)
Figuring Out Fashion Week’s Carbon Problem -- "The travel undertaken by buyers and brands resulted in about 241,000 tons of CO2 emissions a year. That figure, said the report, is equivalent to the annual emissions of a small country — say, Saint Kitts and Nevis — or enough energy to light up Times Square for 58 years." (New York Times)
Waste Not, Shop Not -- "Fashion production consumes a staggering 25 percent of all of the chemicals made on earth and is responsible for nearly 20 percent of worldwide water pollution; almost 90 percent of fresh and seawater samples contain microfibers, which have even been found in Antarctica." (New York Review of Books)
My Epic Closet Clean Out -- "If you consider some of the sobering statistics–85% of textiles end of in landfills and that between 2000 and 2014 people increased their clothing purchases by 60%, buying whatever you want when you want it–just clicking the LikeToKnowIt button on Instagram and snatching up whatever that really chic influencer is wearing, starts to feel like a wasteful, un-modern practice that is ultimately harmful to the planet." (The Flair Index)
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On the advice of some very wise friends who listened to me moan about my writers' block, then gently asked, "Do you want us to listen or do you want advice?" ... I'm just writing my way out of a block and toward whatever big writing goal will emerge after I've just kept writing for a while. As always, any feedback, questions or suggestions welcome either via email (reply to this) or via Twitter (@lschmeiser).