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Monday, 15 October 2018 13:11

Death of Retail - Part 1

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It is not a future prediction – it is already happening. In India it has recently started but in US it is a well known phenomenon now named Retail Apocalypse. Due to lack of Indian data, this article highlights mainly US data.

Shocking Facts

  • Over 12,000 physical stores have been closed in US starting in 2010 and continuing through 2018. These are brick-and-mortar retail stores, especially those of large chains.
  • Major department stores such as J. C. Penney, Macy’s, Sears, and Kmart have announced hundreds of store closures, and well-known apparel brands such as J. Crew and Ralph Lauren are unprofitable. Of the 1,200 shopping malls across the US, 50% are expected to close by 2023. More than 12,000 stores are expected to close in 2018. Several retailers such as “Toys R Us” and “The Bon-Ton” have liquidated and closed all their stores.
  • Since 2001, department stores alone have lost half a million jobs.
  • At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.
  • Moody’s said in a report that retail sector defaults hit a record high during the first three months of 2018 as the rise of e-commerce and decline of malls continues to eat away at profits.
  • Even banks are closing locations at an astounding rate as well.  In fact, from June 2016 to June 2017 the number of bank branches in the United States fell by more than 1,700.

The following is a list of just some of the major retailers that are closing stores in 2018…

  • Abercrombie & Fitch: 60 more stores are charted to close
  • Aerosoles: Only 4 of their 88 stores are definitely remaining open
  • American Apparel: They’ve filed for bankruptcy and all their stores have closed (or will soon)
  • BCBG: 118 stores have closed
  • Bebe: Bebe is history and all 168 stores have closed
  • Bon-Ton: They’ve filed for Chapter 11 and will be closing 48 stores.
  • The Children’s Place: They plan to close hundreds of stores by 2020 and are going digital.
  • CVS: They closed 70 stores but thousands still remain viable.
  • Foot Locker: They’re closing 110 underperforming stores shortly.
  • Guess: 60 stores will bite the dust this year.
  • Gymboree: A whopping 350 stores will close their doors for good this year
  • HHGregg: All 220 stores will be closed this year after the company filed for bankruptcy.
  • Crew: They’ll be closing 50 stores instead of the original 20 they had announced.
  • C. Penney: They’ve closed 138 stores and plan to turn all the remaining ones into toy stores.
  • The Limited: All 250 retail locations have been closed and they’ve gone digital in an effort to remain in business.
  • Macy’s: 7 more stores will soon close and more than 5000 employees will be laid off.
  • Michael Kors: They’ll close 125 stores this year.
  • Payless: They’ll be closing a whopping 800 stores this year after recently filing for bankruptcy.
  • Radio Shack: More than 1000 stores have been shut down this year, leaving them with only 70 stores nationwide.
  • Rue 21: They’ll be closing 400 stores this year.
  • Sears/Kmart: They’ve closed over 300 locations.
  • ToysRUs: They’ve filed for bankruptcy but at this point, have not announced store closures, and have in fact, stated their stores will remain open.
  • Wet Seal: This place is history – all 171 stores will soon be closed.

 

Warren Buffett just confirmed the death of retail as we know it

Warren Buffett says that in 10 years the retail industry will look nothing like it does now. "The department store is online now, I have no illusion that 10 years from now will look the same as today, and there will be a few things along the way that surprise us... The world has evolved, and it's going to keep evolving, but the speed is increasing."

Buffett's partner Charlie Munger also said, "It would certainly be unpleasant if we were in the department store business."

Buffett isn't just sounding off about the demise of traditional retail - he's been pulling his money out of the industry, as well. His firm, Berkshire Hathaway, fired a warning signal for the entire retail industry in February when it sold off $900 million of Walmart stock, choosing instead to invest billions in airlines.

The sale left Buffett with nearly no shares in Walmart, at a time when world's largest retailer is investing billions in the battle to catch up to Amazon online.

In an interview with CNBC after the sale, Buffett said retail is "too tough" an investment, especially in the age of Amazon.

Buffett isn't the only investor who thinks these trends are permanent.

The asset management company Cohen & Steers has released a report supporting that theory. "We see this retail weakness, which is occurring despite a relatively healthy economy, as part of a permanent evolution in how and where Americans spend their money," the firm, which manages $58.5 billion in assets, said in a report published last week. "We expect the paradigm shift taking place to dramatically alter the retail landscape, with potentially significant implications for real estate investors."

Reasons behind Retail Apocalypse

There are several factors behind it and ecommerce is considered to be a major one. Other reasons are such as over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits outside holiday binge spending, delayed effects of the Great Recession, and changes in spending habits.

Why physical stores can never beat online stores

Online shops offer unbeatable advantages over physical shops. In fact the advantages in some cases are so glaring that almost whole industries have been wiped out. Consider the case of books – the benefits of online book shops are so great that most of the physical book stores have closed shops!

Major benefits are listed below –

Convenience: The convenience is the biggest perk. Where else can you comfortably shop at midnight while in your pajamas? There are no lines to wait in or shop assistants to wait on to help you with your purchases, and you can do your shopping in minutes. Online shops give us the opportunity to shop 24/7, and also reward us with a ‘no pollution’ shopping experience. There is no better place to buy informational products like e-books, which are available to you instantly, as soon as the payment goes through. Downloadable items purchased online eliminate the need for any kind of material goods at all, as well, which helps the environment!

Easy access to consumer reviews: It's easy to access consumer reviews for pretty much any product you can think of online, which makes for informed purchases. Not sure you're up to buying something? Look at the reviews from other consumers, and you'll be better able to make an informed decision.

Better prices: Cheap deals and better prices are available online, because products come to you direct from the manufacturer or seller without middleman being involved. Many online shops offer discount coupons and rebates as well.

Infinite variety: The choices online are amazing. One can get several brands and products from different sellers all in one place. You can get in on the latest international trends without spending money on airfare. You can shop from retailers in other parts of the country, or even the world, all without being limited by geography. A far greater selection of colors and sizes than you will find locally are at your disposal. Apart from that, the stock is much more plentiful. Some online shops even provisions in place to accept orders for items out of stock and ship it when the stock becomes available. You also have the option of taking your business to another online store where the product is available.

You can send gifts more easily: Sending gifts to relatives and friends is easy, no matter where they are. Now, there is no need to make distance an excuse for not sending a gift on occasions like birthdays, weddings, anniversaries, Valentine's Day, Mother's Day, Father's Day, and so forth.

Fewer expenses: Many times, when we opt for conventional shopping, we tend to spend a lot more than planned. There are other outside expenses on things like eating out, transportation, parking, and let's not forget impulse buys!

Price comparisons: Comparing and researching products and their prices is so much easier online. Also, we have the ability to share information and reviews with other shoppers who have firsthand experience with a product or retailer.

No crowds: If you hate crowds when you're shopping, you would love to shop online. Especially during festivals or special events, they can be such a huge headache. Also, it tends to be more chaotic when there are more crowds out and this sometimes makes us feel rush or hurried. All of these problems can be avoided when you shop online.

Less compulsive shopping: Often times when we're out shopping, we end up buying things compulsively that we don't really need. All because shop keepers pressure us or use their selling skills to compel us to make these purchases. Sometimes, we even compromise on our choices because of the lack of choices in those shops.

Physical stores can never offer these advantages, so they suffer a huge handicap and in long run, they will never be able to compete. They do have an edge in some areas like actual trying facility (good for fashion segment), personal service, fresh product (restaurants) etc. But these will help survive only some specific types of businesses. Majority of the retail businesses have structural weaknesses in the critical areas, which will result in their extinction in few years.

Useful links:

Warren Buffett just confirmed the death of retail as we know it

Retail apocalypse

Death of Retail Store

 

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