A New Chapter in American Retail

Heading into this holiday shopping season, E-commerce has matured to the point that Amazon is now the pre-eminent 800 pound gorilla in the popular perception of America’s retail space. “Amazoned” and “Amazonization” have become accepted terms in common parlance to describe retail businesses that have failed due to their inability to compete on-line. And there is no doubting that on-line sales will continue to selectively displace in-store sales. The National Retail Federation expects store based sales to increase by about 4% this year, but that on-line sales should increase over three times that amount.

Once one gets beyond the broad truth that e-commerce is here to stay, one should be careful in make sweeping characterizations because societal factors must be recognized as contributing to some of the superficially contradictory trends emerging in retail.

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Shopping Malls Were Culturally Significant, Just as the Internet is Now. At one time, malls were the new town square: a place to eat, go to the movies, stroll, people watch, shop, and then walk out to the acres of free parking, put your loot into the car and drive home. The American mall became in the words of Joan Didion, the “pyramids to the boom years” of America’s post-war global economic dominance, suburbanization and consumerism
Malls, in their day, were generally successful because they delivered a pleasant shopping experience and American retailers and real estate developers were happy to give American consumers what they seemed to like – more Malls. Even as recently as 2016, according to Morningstar, the US had 23.5 square feet of retail space per person, the most by far in the world. Canada, our cultural cousin to the north, came in at a distant second with 16.4 square feet.
The Great Recession, however, was the watershed period that forever changed the landscape of American retail. Between 2007 and 2009, 400 of America’s largest 2,000 malls closed. While estimates vary, most analysts believe that about half of America’s remaining malls will not be around in their current format 15 years from now. The most likely candidates for closure going forward are malls in less populous and affluent areas anchored by department stores.

The American shopping experience looks different than it did in years past partly because American culture is different today than in years past. Americans shop more on-line today because they do everything more on-line today, including socialize. Appreciating that the American shopping mall was a function of culture helps to make sense of the fact that, notwithstanding profound cultural changes, certain store based retailers are continuing to do well because they are delivering the right products, at the right locations, at the right prices with the right shopping experiences.

Best Buy in electronics, Costco in groceries, and TJX in discounted apparel are all competing very well in areas that many retailers would be willing to concede to Amazon. Home Depot continues to be a stalwart in hardware and home improvement, an area by no means immune to internet competition.

The Tables below, from Fung’s Global Retail and Technology, show 2017’s projected store openings and store closings. There is no escaping the harsh fact that the dominant category of new store is the deep discount ‘dollar’ stores. According to a well-publicized Washington Post article in 2014, 90% of Americans today are poorer than they were in 1987. Shopping is clearly a more utilitarian exercise than it used to be in the glory days of the American shopping mall.

About Chris Donnelly

Christopher J. Donnelly, is an experienced attorney, bond analyst and fixed income strategist, with years of experience in structured finance, distressed bonds and bond related litigation in a variety of industries and the emerging markets. He is a graduate of Rutgers University (BA), The University of Pennsylvania (JD) and New York University, (LLM in Taxation). Chris is a Managing Director of Straacom, LLC and can be contacted at cdonnelly@straacom.com. Straacom provides strategic research, analysis and communications for publication and on assignment for private clients.