Saturday, November 21, 2020

Retail apocalypse

The retail apocalypse is the closing of numerous brick-and-mortar retail stores, especially those of large chains worldwide, starting around 2010 and continuing onward. In 2019, retailers in the United States announced 9,302 store closings, a 59% jump from 2018, and the highest number since tracking the data began in 2012. Over 12,000 physical stores have closed due to factors including over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits outside holiday binge spending, delayed effects of the Great Recession, and changes in spending habits. American consumers have shifted their purchasing habits due to various factors, including experience-spending versus material goods and homes, casual fashion in relaxed dress codes, as well as the rise of e-commerce, mostly in the form of competition from juggernaut companies such as Amazon.com and Walmart. A 2017 Business Insider report dubbed this phenomenon the "Amazon effect," and calculated that Amazon.com was generating greater than 50% of the growth of retail sales. The rash of bankruptcies and store closings is expected to greatly intensify due to the COVID-19 pandemic, with most retail stores, particularly already struggling mall-based retailers, closing for extended periods of time. J. Crew, Neiman Marcus, Stage Stores, JCPenney, and Tuesday Morning were among the retailers to file for bankruptcy during the pandemic. The most productive retailers in North America during the retail apocalypse are the discount superstores Walmart and Target, the low-cost "fast-fashion" brands (e.g., Zara, Uniqlo, Cotton On, and H&M), off-price department stores (Ross Stores and DD's Discounts, Marshalls and Burlington) and dollar stores (e.g., Dollar General and Dollar Tree). Pop-up retail, including seasonal retailers such as Spirit Halloween, operating temporarily in vacant spots after companies go out of business which has become more common during the retail apocalypse. Research from IHL Group finds that when a retailer closes many stores, it says more about the individual retailer rather than the retail industry overall. In 2019, the 20 stores announcing the most closures represent 75% of all closures. IHL found that for each retailer that is closing stores in 2019 more than five retail chains are opening stores, which is up from the 3.7 ratio in 2018. IHL also reported that the number of chains adding stores in 2019 has increased 56%, while the number of closing stores has decreased by 66% in the last year. History: The term "retail apocalypse" began gaining widespread usage in 2017 following multiple announcements from many major retailers of plans to either discontinue or greatly scale back a retail presence, including companies such as H.H. Gregg, Family Christian Stores and The Limited all going out of business entirely. The Atlantic described the phenomenon as "The Great Retail Apocalypse of 2017," reporting nine retail bankruptcies and several apparel companies having their stock hit new lows, including that of Lululemon, Urban Outfitters, and American Eagle. Credit Suisse, a major global financial services company, predicted that 25% of U.S. malls remaining in 2017 could close by 2022. Since at least 2010, various economic factors have resulted in the closing of many stores in North America, the United Kingdom, and Australia, particularly in the department store industry. For example, Sears Holdings had more than 3,500 stores and 355,000 employees in 2006. By the end of 2016, Sears operated 1,430 stores. In October 2018, Sears filed for bankruptcy and announced they would close an additional 142 of their 687 stores. At the time of filing, Sears had 68,000 employees. The retail apocalypse has had a domino effect on suppliers; Hasbro, for example, cited the loss of the Toys "R" Us chain as a major cause for lost revenue and layoffs the company imposed in October 2018. As of May 2020, the rash of bankruptcies and store closings is expected to greatly intensify due to the financial impact of the COVID-19 pandemic. J. Crew, Neiman Marcus, Stage Stores, JCPenney, and Tuesday Morning were among the first major retailers to file for bankruptcy during the pandemic. Factors- Shift to e-commerce: The main factor cited in the closing of retail stores in the retail apocalypse is the shift in consumer habits towards online shopping. Holiday sales for e-commerce were reported as increasing by 11% for 2016 compared with 2015 by Adobe Digital Insights, with Slice Intelligence reporting an even more generous 20% increase. Comparatively, brick-and-mortar stores saw an overall increase of only 1.6%, with physical department stores experiencing a 4.8% decline. ... several trends—including the rise of e-commerce, the over-supply of malls, and the surprising effects of a restaurant renaissance—have conspired to change the face of American shopping. -The Atlant Over-malled: Another factor is an over-supply of malls, as the growth rate of malls in North America between 1970 and 2015 was over twice the growth rate of the population. In 2004, Malcolm Gladwell wrote that investment in malls was artificially accelerated when the United States Congress introduced accelerated depreciation into the tax code in 1954. Despite the construction of new malls, mall visits declined by 50% between 2010 and 2013 with further declines reported in each successive year. Experience economy: A major reported factor is the "restaurant renaissance" and shift in consumer spending habits for their disposable income from material purchases such as clothing towards dining out and travel. Shrinking middle class" Another cited factor is the "death of the American middle class," resulting in large-scale closures of retailers such as Macy's and Sears, which traditionally relied on spending from this market segment. Particularly in rural areas, variety stores such as Dollar General, once thought to be unaffected by the apocalypse since they have continued growing rapidly, are now perceived as being at best a symptom of the phenomenon, and at worst a direct cause of rural, independent retailers collapsing, unable to compete with the lower margins that national chains can sustain. Poor management: The final factor in poor brick-and-mortar sales performance is a combination of poor retail management coupled with an overcritical eye towards quarterly dividends: a lack of accurate inventory control creates both underperforming and out-of-stock merchandise, causing a poor shopping experience for customers in order to optimize short-term balance sheets, the latter of which also influences the desire to understaff retail stores in order to keep claimed profits high. Furthermore, many long-standing chain retailers are overloaded with debt, often from leveraged buyouts from private equity firms, which hinders the profitable operation of retail chains. COVID-19 pandemic: The COVID-19 pandemic exacerbated many issues affecting retailers, as many were forced to shut down due to non-pharmaceutical interventions that were issued in an effort to mitigate the pandemic. At the same time, online shopping has been booming during the coronavirus-related lockdown. Most of the major e-commerce retailers in the United States were classified as essential businesses and were not required to shut down. Buyers stated that they would deliberately buy products from such categories as food and drinks, hygiene, household cleaning, clothing, health, and consumer electronics online rather than in person due to COVID-19. The outbreak is said to have changed shopping behavior permanently: in the US, 29% of surveyed consumers stated that they had no intention to ever go back to offline shopping. In the UK, this number reached 43%. On June 9, 2020, Retail research firm Coresight reported that they estimated the number of store closures due to the pandemic and ensuing recession will exceed 2019's record of 9,302. Strategies: Researchers have identified customer experience and brand reputation as two factors that can influence whether a retailer will survive. Some more established retailers like Toys R Us may not have been as responsive to changing trends in consumer behavior. Some researchers have made recommendations based on trends and technologies to improve the outlook for traditional brick and mortar retailers. Ikea became one of the first retailers to use Apple's ARKit to develop an augmented reality app that allowed customers to visualize 3D renderings of Ikea products as they would appear in a certain room or place. Macy's, American Eagle, Nike and Sephora were reported to be implementing various technologies to integrate digital experiences to improve consumers' physical shopping experiences. Sephora has installed smart mirrors that use augmented reality technology to allow customers to try on makeup. Kohl's has reduced the size of some stores from 90,000 to between 60,000 and 35,000 square feet. Walmart has automated some aspects of its supply chain. Walmart has started using robots to help with cleaning and stocking shelves. Company executives have said robots lower costs and improve efficiency, but employees report they don't like working with robots. Lowe's has been using LowesBot to help customers find items. According to a study from the International Council of Shopping Centers, new stores can increase traffic to retailer websites by an average of 37% and drive up share of web traffic within that market by 27% in what is called a "halo effect".

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