We’ve come to the time of year when holiday lights glitter on town squares, downtowns, and commercial corridors across the country. Intertwined among those twinkling lights are retailers, large and small, that are hoping to generate a substantial portion of their revenue in the lead up to the holiday season. In terms of the economy, this time of year is an informal benchmark for the health of the retail industry, as well as overall consumer confidence.
A recent National Retail Federation (NRF) survey estimates that 54% of people will spend about the same on gifts as they spent last year and 24% of shoppers surveyed intend to spend more. The NRF notes that the age group between 18-24 is the most apt to increase their spending.
Despite generally positive news about consumer spending, 2017 will be known as the year newspaper headlines screamed the apocalyptic end of retail. However, the retail industry’s transformation deserves a more nuanced discussion around the economic and consumer trends driving the changes. It is true that department stores like Sears, Kmart, JCPenney, and Macy’s have seen a tremendous downturn in sales causing the reorganization and shuttering of stores, leading to layoffs across the country. As Bloomberg reports, this is alarming when you consider that unemployment is relatively low, the Consumer Sentiment Index is high, and the U.S. economy shows signs of growth.
These signs typically set the stage for a positive retail outlook. However, the retail closures we’re all witnessing are due to more complex factors than changing consumer preferences and Amazon letting themselves into your apartment to drop off a package. The retail industry is over-built and is responsible for an enormous real estate debt that is weighing down traditional companies’ ability to dynamically respond to changes in the market. Stores that were once in high demand in the typical suburban shopping mall, like American Apparel, The Limited, Payless, Gymboree, and others, all had to broach bankruptcy discussions this past year. Clothing retailers were not the only category hit; technology and gaming stores like RadioShack and GameStop also fell behind in meeting changing consumer demand.
While apparel, footwear and home entertainment stores saw the largest number of closings during the first three quarters of 2017, other segments of retail are not only surviving, they are thriving. Discount retailers like the Dollar Store, Ross Stores and TJ Maxx have proven popular with cost-conscious consumers. These stores all anticipated new locations in 2017. Discount grocery establishments, like German exports Lidl and Aldi, are also finding success in more markets across the country. Aldi has been in the United States for nearly 40 years and has approximately 1,700 locations across the country. The company intends to expand the total number of stores to 2,500 by 2022. Lidl has not reached the same level of market penetration as Aldi, however it also intends to increase its presence in the U.S., projecting an increase of 70 new stores, reaching a total of 100 locations, during 2018.
The definition of retail as an industry has shifted over the last decade and big name brands are branching out of the typical shopping experience to retain existing customers and attract new ones. For example, clothing giant Nordstrom is steering away from the norm with their latest venture, opening a series of stores with no clothing. Named “Nordstrom Local,” the stores are a scant 3,000 square feet, a fraction of the typical 140,000-square-foot store. Products at these locations will include wine, beer and coffee, along with more experiential options like working with a one-on-one stylist to choose from a range of pre-selected options. The stylist can then go pick up the clothes from one of Nordstrom’s clothing stores while the client enjoys a cocktail or manicure.
If the hallmark retail trend of the 1980s and 1990s was the suburban shopping mall, where high school students hung out in food courts and retirees enjoyed early morning mall walks, today’s successful retailers have emerged from the confines of the mall and integrated themselves into more centrally located downtowns where people live, work and play. Studying the retail mix and density that is appropriate for the community helps ensure the goods and services offered by retailers are in demand by local consumers, or that specialty retailers provide a unique good for which people will be willing to travel. Often, it is the mix of stores that creates a high-quality place that draws in people for more than one reason. There may be a restaurant with Tuesday night cooking class, along with a store that offers demonstrations of its latest gadget.
Ecommerce and Technology
There is no doubt that technology and the boom of ecommerce has accelerated the failure of retail giants who have lagged in responding to changing consumer preferences. Retailers that are thriving are those that are closely connected to their markets, willing to listen to immediate customer feedback, and quickly respond to this feedback by altering their products or services. Ecommerce does not just pertain to desktop computers—mobile apps, interactive programs, and virtual reality are all methods retailers use to generate interest and sell products.
According to the U.S. Census Department of Commerce, ecommerce1 sales still account for a relatively small portion of total retail sales across the United States.
As of the third quarter of 2017, national retail sales reached approximately $1.27 trillion. About 9% of total sales were attributed to ecommerce sales, about $115.3 billion.
While ecommerce still comprises a low share of total sales overall, the growth of ecommerce as a proportion of total sales has been steadily climbing and still has more market share it can capture from traditional retail. Year-over-year ecommerce sales growth from Q3 2016 to Q3 2017 totaled 15.5% nationwide, compared to 4.3% for the retail sector overall.2
The future of retail will further integrate technology from conception of a product to distribution to inventory management in stores and in personal homes. Products like Google Home or Amazon’s Alexa have begun to coordinate our retail needs across one platform and this technology seeks to assemble your shopping list, even before you can pull out your pen and paper to write down “light bulbs” and “dog food.” For example, Alexa may be able to sense that two light bulbs in the kitchen are about to burn out and automatically order the correct make and model to be delivered to your door in a day or two. Businesses will embrace technology across their retail channels to be successful.
Will you be spending more on hooking you and your loved ones up to artificial intelligence gadgets this holiday season? Let us know!
Adaptive Reuse of Retail’s Former Glory
As the look and feel of retail storefronts continues to evolve, many cities are looking to repurpose the infrastructure that supported the retail supply chain of the past. Former retail manufacturing and assembly plants are being redeveloped into live/work/play environments to accommodate local housing demand and attract visitors. The Atlantic recently profiled several adaptive reuse projects of former Sears warehouses that sat delinquent for decades but are now some of the most prominent buildings in their respective cities. Each project showcases its own local flair, but they all include some mixture of housing, commercial activity, and in some cases, a food market.
Minneapolis’ Midtown Exchange, a Sears plant that closed in 1994, made a conscience effort to redevelop thinking about elements of equity and included about 178 affordable housing units in the mixed-used project. Additionally, an underground food market, named the Midtown Global Market boasts 45 vendors from over 20 cultures. Further boosting the foot traffic to the development is a rails-to-trails project that brings in people looking to fuel themselves on their journey.
Editor’s Note: Camoin Associates is currently working with several clients to re-position how communities think about their downtowns, commercial corridors and how to engage consumers in the evolving retail industry. Our ongoing research into the retail industry contributed to this article.
1. Note: The Census Bureau categorizes e-commerce divisions of companies with physical storefronts as part of the electronic shopping and mail-order houses industry (NAICS 4541) as long as they do not primarily fulfill e-commerce orders from their stores. Companies provide separate information on their brick-and-mortar stores and their e-commerce divisions. For example, if an electronics store has online and brick and mortar sales, the online sales would be tabulated as part of the electronic shopping and mail-order houses industry and the brick and mortar sales would be tabulated in electronics and appliance stores (NAICS 443).
2. US Census Bureau, Quarterly Retail E-commerce Sales 3nd Quarter 2017