Why Reports of a Retail Apocalypse Are Greatly Exaggerated
Retail is not dead, it is alive and well, ask Amazon. While 2017 had a record number of store closings and it is expected that there will be even more in 2018 there are many reasons to be optimistic. What has happened in the retail sector and what continues to happen is a changing of the guard.
The retail model of the past was centred around shopping malls with large anchor tenants. These tenants are retailers that many of us grew up with from Sears to Macy’s to JCPenny. They were the places we went to on a Saturday afternoon with our mom or our friends. It was how we spent our time. Fast forward to 2018 and that way of shopping no longer feels as relevant.
Walk through a large department store today and often it is hard to find a sales associate. How long does it take for a customer to be noticed? Curious about this I actually decided to see how long it would take for a sales associate to notice me on a Saturday afternoon in a department store in Toronto. 20 minutes. That is how long it took. Surrounded by boxes of shoes I wanted to try on I waited and waited. Now I understand what was happening, there were several customers but unfortunately not enough sales associates were on the floor. While I waited, using my phone I went onto the retailer’s website to see if they might have my size in-stock. When I finally was served they were out of stock in several items and I ended up leaving with nothing. Other times when this happens I go onto Amazon.com and make a quick purchase. That chain of events, so simple, so familiar but with profound consequences. In a world where people are used to instant gratification waiting 20 minutes to be served can feel like a lifetime.
Stores like Macy’s and Sears feel difficult to shop in now. Hunting through a very large store looking for the perfect summer dress now feels like it takes too much time – first world problems for sure but our expectations have changed. And the retailers that have failed to reinvent themselves in the face of new technologies and heightened customer expectations are suffering. But there are reasons to feel optimistic. Retail sales are strong. The National Retail Federation estimates that retail sales in the US (excluding automobiles, gasoline stations and restaurants) will increase by 3.8% to 4.4% in 2018 vs. a 3.9% growth rate in 2017. That is a good news story. Dollar stores, off-price stores and beauty retailers are capturing a lot of the gains and here is why.
Dollar stores are catering to a budget conscious consumer
Everyone loves a good bargain. Dollar stores became more popular during the great recession and consumers continue to shop there. Dollar General is planning to open 900 new stores in 2018 and it opened 1,000 stores in 2017. Other dollar stores that are opening stores in 2018 include Dollar Tree, Family Dollar, Aldi, and Five Below. These retailers will open close to 2,000 stores in 2018.
Nothing beats the treasure hunt offered by an off-price retailer
Off-price stores such as T.J. Maxx, Nordstrom Rack and Ross Stores are thriving. Moody’s predicted that the operating income for off-price retailers would grow by 7% in 2017 and by 5% in 2018. Nordstrom is planning to open 14 Nordstrom Rack stores in 2018. T.J. Maxx opened 65 new stores in 2017. The mix of a treasure hunt and great value for money keeps customers coming back for more.
Is it really possible to have too much makeup?
Sephora’s store count increased by close to 100 stores in 2017. It has done a wonderful job of providing great customer service and it is leveraging technology to provide a better customer experience. For example, its innovative mobile app features a Virtual Artist. The Virtual Artist uses facial recognition technology to allow customers to digitally try on products. Now that is an experience that makes the process of finding new makeup fun and easy. Sephora's competitor Ulta Beauty is also performing well and is planning to open at least 100 stores in 2018.
With high consumer confidence and low unemployment in the US the retail sector is poised to continue its gains. The challenges faced by certain segments of the market underscore the importance of innovating and having a clear value proposition. The “everything store” of the past were department stores and now its Amazon. What you are witnessing right now is a dismantling of the retailers who have not been able to keep up with the pace of change. Similar to how Netflix disrupted Blockbuster, sales are not disappearing they are shifting to retailers that are meeting evolving customer needs.
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