It’s hard to believe but we just blew by Halloween on the fast track to Christmas. As I write there are 54 shopping days left. I’m beginning to feel the pressure mount.
How will you shop? ‘til you drop at the mall or from your cozy couch in your PJs and slippers?
Some brick and mortar retailers are catching on to changing consumer preferences for both low prices and convenience. Many are confounded by the mercurial change, trapped in an obsolete business model. More of us will browse the web, buy from our favorite virtual shop and enjoy free delivery to our front door than ever before.
This is BIG
Hooray for Singles Day!
Did you know that November 11 is not only Singles Day in China but is also world’s busiest shopping day? According to The Economist magazine, The New Bazaar, dated October 28, 2017, Chinese e-com giant Alibaba “rang up sales of $18 billion on this date in 2016, the most ever spent in one day anywhere on earth.”
Global e-com has been expanding at 20% per year since the 1990s. On-line shopping currently represents only 8.5% of global retail sales. The potential for exponential growth is considerable as the wave of millennials enter their peak spending years. Some economists see 25% of all retail sales moving on-line as soon as 2020.
Why It Matters
The Three Heavyweights
China’s Alibaba and America’s Amazon are carving out huge swaths of the global e-com world, making the largest retailer, Walmart, rethink its value proposition and increase spending to fight off its ferocious competitors.
America’s shopping malls and Main Street mom and pops are under serious pressure. Since the late 1990s e-com has grown from enigma to existential threat. From JC Penney to Sears to Macy’s we see the signs of stress that accompany radical transformation. The retail brick and mortar model is experiencing the relentless grind of creative destruction. One in nine American jobs is in retail.
The Shift is On.
The square footage dedicated to shopping malls and mom and pops is migrating to large warehouses. This evolving transshipment point between manufacturer and consumer will likely require more drone operators than sales clerks one day soon.
Again, referring to The Economist magazine,” Amazon’s own inventory accounts for less than half the sales on its site.” An increasing number of retailers are trading Main Street store fronts for space in Amazon’s warehouse.
What It Means
Shop ‘til you drop-Not!
America’s retailers have come un-moored from their brick and mortar dock. They are adrift and listing in a most threatening storm. The consulting group Fung Global Retail and Technology expects 10,000 shops to close in America-this year. That’s 50% more closures than in 2008. This change is secular; it’s structural not cyclical.
As retail anchor tenants vacate the mall and mom and pops head for the exits new tenants will emerge- at the right price. The shift from retail stores to coffee shops and yoga studios means lower rents and more vacant space. This will put downward pressure on property values and ultimately tax revenue.
Of Jobs and Square Footage
As demand for retail space gives way to increased warehouse volume distributers will want to locate close to consumers. City and County development plans will need to account for the change ushered in by the new retail model. The trend to re-urbanization is likely to continue.
For now, new warehouse job gains are keeping pace with those lost in malls and storefronts. But the shift to robotics continues unabated, driven by cost cutting efficiencies and extreme competition.
Lost Revenue-Increased Debt
When structural economic disruption threatens to blight a downtown walking mall, for example, debt solutions become tempting. Cleveland, Ohio has converted empty retail space into a community recreation center and offices for city employees financed by muni-bonds. Forward looking communities are evaluating project sustainability, bearing in mind technology’s power to create and destroy, when considering incentives and financial support. This all contributes to the necessity for a deep dive understanding of our municipal tax base and employment situation.
This Goes Beyond Retail
Jeff Bezos brought Amazon to life in 1997 to challenge the traditional book store model, specifically, Barnes and Nobel. Since, Amazon has morphed from an upstart on-line book seller to a multi-national conglomerate operating in over a dozen world markets. Amazon spreads disruption as it infiltrates local economies. Amazon sells books, movies, music, logistics, advertising, and manufacturing. Also in Amazon’s business mix, leasing cargo planes, producing films and renting its excess bandwidth through Amazon Web Services.
The build out of the e-com infrastructure will bring disruption and opportunities to communities across America.
May I Suggest a SWOT?
Evaluate your community’s ability to absorb change and capture opportunity. Anticipate change in your community tax base and employment situation. Cultivate change in your organization. Know your community’s Strengths, Weaknesses, Opportunities and Threats- SWOT! Then consider how your community might increase its gravitational pull for these new and innovative opportunities. When working with your economic development team you may wish to consider how to access the revenue streams and jobs associated with these new trends in retail.
“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” Malcom X
