The Changing Face of Retail in America

July 17, 2017

Today’s retail environment is a very different one compared to even ten years ago. We all know about the rise of e-commerce and malls struggling to fill physical retail space. However, there’s a lot more to this changing landscape than just consumers choosing websites instead of stores.

The headline statistic of last year’s holiday season was that consumers were expected to spend more than $2 billion online. The actual number fell a little short – $1.93 billion – but the message was clear: consumers are looking for their deals on the web, not in stores.

Despite this online surge, less than 10% of purchases in America are made online. That figure is growing at a steady clip – around 1% every year since 2013 – but it’s a relatively small slice of the pie.

shoppers-with-bags-on-phone

Traditional Retail Must Adapt (Or Die)

Even the most ardent fan of cornerstone mall retailers will admit that they need to change tack, quickly. At a glance, here are some of the announcements made by this type of business last year:

  • Sears – $2 billion losses in 2016 are driving hundreds of store closures this year, as the company struggles to fight off bankruptcy.
  • Kohl’s – Posted a 2.4% decrease in sales for 2016 and closed 19 stores, but has fared better than others as it works to streamline stores, rather than put up the shutters.
  • Macy’s – After revenue fell by more than $1 billion in 2016, the iconic brand announced that almost one-in-ten stores will be closed in 2017.
  • JC Penney – 2016 saw another revenue fall for a company that hasn’t posted a full-year profit since 2011. Mounting debt and 138 store closures planned in 2017 point to a tough road back for Penney.

The Wall Street Journal summed up all of this with two statistics from the first half of 2017: 10.8% year-on-year sales growth for U.S. non-store retailers, compared to a 4.2% decline at department stores.

Research also suggests that Americans are spending more money on technology and experiences like vacations, rather than apparel and accessories. For those who still prioritize more traditional items, Amazon and discount stores are taking a huge bite out of big box retailers and the mall chains.

All of which is points to the writing on the wall for traditional retailers: adjust to the needs of modern consumers or continue to fade away slowly.

Sears-empty-retail-in-america

Reinventing the Retail Experience

Property developers now realize they need to reinvent the concept of what it means to go to the mall. That means creating a new experience that persuades consumers to come back. It means activities that cannot be replicated online, such as diverse dining options, indoor playgrounds for kids, luxurious movie theaters, and even craft breweries.

In this context, there are many retail success stories.

In Florida, Bal Harbour Shops recently received approval for expansion plans that have been in the pipeline for years.  The fifty-year-old establishment has emerged from the ups and downs of the digital era in better shape than ever, with sales per square foot surging past the $3,000 mark in recent years.

Closer to home (for us, at least), is the Woodbury Common Premium Outlet mall in Central Valley, NY. This popular tourist destination benefits from its proximity to New York City, from which millions of tourists flock in every year. Woodbury recently completed its fourth major expansion in 25 years. The $130 million makeover positions the venerable outlet as one of the East coast’s most attractive retail experiences.

The concern is that most of the examples where malls and retailers have turned things around are in affluent areas. Where people have plenty of money to spend, all developers need to do is get the word out that the mall is back (and better than ever!) to re-engage the customers they’d lost.

woodbury-common-ny-outlet

In lower income areas, price is frequently the deciding factor. On that battlefield, online retailers win almost every time.

With free shipping now commonplace and big box brands like Walmart and Target engaged in price wars with Amazon, that trend will continue for the foreseeable future. For retailers relying on price-sensitive customers, enhancing the retail experience is unlikely to fully address the issues they face.

The Future Face of Retail in America

In reality, creating a “retail experience” is just flowery language to describe a repositioning of retail in America. When foot traffic was plentiful, it was enough for malls to gather lots of different names under one roof and provide some basic amenities. Now that a new generation is finding many of those products online – or failing to buy them at all – retailers and those who host them are compelled to find another reason for customers to visit them.

When foot traffic was plentiful, it was enough for malls to gather lots of different names under one roof and provide some basic amenities. Now that a new generation is finding many of those products online – or failing to buy them at all – retailers and those who host them are compelled to find another reason for customers to visit them.

For proof that this section of consumers remains a valuable segment, look no further than the company that kick-started e-commerce in the first place. 

Just this year, Amazon has added pop-up stores to malls across the country, announced pick-up locations on college campuses, and acquired premium grocery chain Whole Foods for $13.7 billion. That last move alone would put the company in charge of more than 450 physical retail locations. Clearly, this isn’t a brand bent on the elimination of bricks-and-mortar stores.

The current state of retail in America is more varied than many observers would have us believe. It’s a nuanced landscape that requires closer analysis and fine-tuning, depending on the business you’re in. Some of the factors to keep in mind include:

  • Traditional malls are not dying across the board, but they do need to refocus their value proposition to consumers.
  • QVC and the Home Shopping Network just announced plans to merge, creating a $14 billion business that spans television and online shopping. Purchasing channels that made their name in the broadcast era are perfectly capable of adapting to a digital world.
  • Almost 40% of purchases on Black Friday 2016 were made on a mobile device. Just as websites forced physical stores to adapt, smartphones are changing the way established e-commerce platforms do business.
  • Some industries are notoriously difficult to drag into the e-commerce framework. Fresh produce is one example. Here, local providers like farms and markets are thriving, while national brands are finding it hard to scale fresh food delivery services outside of major cities.

Iconic brands of the past can still trade on their names but must do so by getting to the core of why customers love them and playing up to those qualities. For example, JC Penney is creating full toy stores across all of its locations, as it attempts to reclaim the family-friendly shopping experience.

The future of retail in America will be driven by consumers. For brands, that means getting closer to customers and listening to their needs, expectations, and desires. It means blending the convenience of ordering online with the experience of excellent service and, in some cases, the option to try an item before buying out. Get that balance right and any retailer will be able to turn their fortunes around.


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