Reversing the Great Retail Apocalypse


The American economy has been growing steadily over the past 18 months, with consumer spending and wages on the rise. Simultaneous with this trend, major retailers have been going bankrupt in a wave of store closures being called “the great retail apocalypse.” Department stores like Macy’s, J.C. Penney, and Sears are rapidly contracting, laying off massive numbers of employees. What explains these seemingly divergent trends? The most obvious answer is the growth of e-commerce which has been accelerating dramatically over the last five years.

There is also an oversupply of retail space; America has far more than any other country. The Cowen Research firm, a market analyst company, found that as of 2015 there was a staggering 7,567,000,000 square feet of existing store space in the USA. To put this in perspective, Canada ranked a far second with 40% less. Most of this shopping space was built before the 2008 recession. Since that time consumer-spending habits have changed, leading to a large number of spaces becoming unoccupied.

Despite the decline in shoppers at physical stores, cashiers and retail associates remain the largest category of jobs in the country. Over eight million people occupy these positions according to the Bureau of Labor Statistics. With so much oversupply, demand for new shopping space will likely grind to a halt. Still, retailers must figure out how to draw foot traffic if they want to avoid a huge segment of the workforce becoming unemployed.

To get customers in the door, athletic brands like Nike, Adidas, and Under Armor are creating fantasy spaces integrated within its flagship locations. Nike’s biggest Manhattan store has a basketball court and a running simulator. Adidas’ elaborately decorated Fifth Avenue outpost includes a mock locker room that functions as the fitting room and patches of synthetic turf to test drive specialist sports shoes.

Adidas is also experimenting with customized product; they have introduced a traveling pop-up shop that makes individually tailored 3-D printed sweaters. The luxury market is adapting as well: Coach’s New York flagship offers a personalization option with a number of its products. The brand’s newest flagship offers made-to-order bags, with two full time craftsmen in-store. Customers can also have bags and accessories embellished with their choice of vintage patches.

These are great novelties for city-specific locations, but what will change retail more broadly is the integration of e-commerce with the in-store experience. This new “omnichannel” approach to retail is a push to make shopping in the physical store as convenient and seamless as online. Some technologies like mobile checkout are already widely in use. Digital mirrors that simulate clothes on the body are already being rolled at the Gap, but there are still other, more intelligent strategies on the horizon.

As of this Fall, Thom Browne will allow customers to digitally check into its New York store. In an effort to build brand loyalty, checking in will enable sales people to view a shopper’s purchase history, product preferences, and browsing behavior. Another technology being rolled out by mega-retailer Target is the RFID chip, which will be embedded in every piece of its merchandise. The chip can monitor a customer’s browsing and purchase history, while also allowing Target to keep precise track of inventory, which will prevent overstocking.

At the extreme, it’s possible that some stores will eliminate staff entirely. Amazon has opened a one-off concept convenience store in Seattle that sells prepackaged foods. There is no cashier or sales person in the store. The “Amazon Go” system integrates sensors and computer vision, which communicate with an app to automatically charge customers before they leave. You simply walk in, take what you want, and walk out.

While visits to physical stores still account for the vast majority of retail sales, it’s undeniable that we are seeing the beginning of a seismic shift in consumer behavior. Unless traditional big name brands quickly innovate to emulate the ease of online shopping, they run the risk of extinction against more tech-savvy companies like Amazon. In short, if America’s great bricks-and-mortar retailers want to survive, they must adopt an adapt or die mentality.


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