Exclusive report

The inevitable decline of retail

Online shopping is rippling through the economy, affecting not just retail but energy consumption and the job market.

Correspondent Marc A. responded to my recent entry Is Anybody Else Tired of Buying and Owning Stuff? (September 7, 2012) with an informed commentary on how online shopping is affecting the retail sector. The Web and online shopping is rippling through the economy, affecting not just retail but energy consumption and the job market.

Is anyone else sick of the “buying experience”? No wonder online buying has become so ubiquitous–the experience of shopping to acquire stuff is a form of torture, at least to some of us. Getting there is a nightmare (unless I can bike to the store), parking is a hassle, clerks generally don’t know much, and the selection is often limited or skewed to the high end. The “fun” is in leaving empty-handed. Is Anybody Else Tired of Buying and Owning Stuff? (September 7, 2012)

Here is Marc’s commentary:


“Yes, online shopping has much room for growth. Given three days the “Brown Truck Store” has an infinite breadth and depth of inventory. A good example are the $39.95 Asic Gel running shoes I’m ordering from an eBay vendor. “Free shipping”. They have my size and are much cheaper than local shoe stores which are also often ‘out’ of my preferred size and style. I can wait four days.

And it’s infinitely cheaper in terms of fuel and energy for one Brown Truck Store to deliver to 600 consumers a day than it is for these 600 consumers to sally forth in 600 vehicles to local stores that are more expensive and aren’t nearly as well-stocked. Once delivery densities in neighborhoods grow large enough UPS and FedEx will add additional men to trot the packages up to doors while the truck rolls slowly down the street. They do this at Christmas time already. Soon it will be standard. But this is only an interim solution.

Once delivery density is high enough UPS & FedEx ground will do what Waste Management has already done. Waste Management compelled the use of standard green wheeled bins that can be picked up by a mechanical arm. And they fired the 50% of the labor force that was riding the back end of the truck and emptying garbage cans manually. UPS/FedEx/DHL/USPS will organize the compulsory installation of secure standard delivery bins at curbside. Then the vehicles will be fitted with chutes and computer-controlled equipment that will dispense packages into the bins. And once enough navigational aids are installed the drivers will be fired, too. We will end up with gas-electric robots rolling down the street making deliveries.

The main reason people want cars for shopping is to carry large quantities of ‘stuff’. Once this task is replaced by home delivery it will become possible to massively expand public transportation. And this is more easily done than is supposed. Consider the airport style auto rental shuttle vans that carry people to and from the rental car lots. This size of van can run routes in residential neighborhoods to and from stops on the main arteries. Larger buses (which may well be electric trolleys with overhead catenaries) will run on these routes. I’ve just described the suburbs of the average Russian and Eastern European metropolis.

Similarly, it’s unnecessary for one soccer mommy to make 14 trips a week to a grocery in her minivan or SUV. Two or three soccer mommies can make one trip a week and save huge amounts of fuel. These huge available economies and telecommuting (for those who still have office jobs) are why I don’t believe in “Collapse” discontinuities even if “Peak Oil” is accurate and occurring now.

Local Shopping

I personally never got used to shopping. I hate it. But a close friend designs merchandising displays and graphics for shopping mall kiosks, “carts” and inline stores. I occasionally lend a hand fabricating and installing merchandising devices that aren’t available “off-the-shelf”. (Actually off the Loaded In Asia container). This has forced me to spend a great deal of time in and around malls in the last few years.

What I have observed makes me think that we’re in for a long transition. Or a steady downward decline depending on your perspective and hopes.

1. The shopping malls will mainly survive at some level. Look at Simon’s Malls stock price if you don’t believe me. Most cities no longer have real “downtowns”. And even the ones that do were generally reinvented as corporate office centers. These malls will primarily survive as women’s clothing and accessories centers. Women love to physically shop for clothing, shoes, jewelry, accessories and cosmetics. Caveat: increasing numbers of them just browse and subsequently order online at a discount and have UPS/FedEx deliver. It’s not just Best Buy that has become a free Amazon walk-in showroom.

Other mall staples such as movie theaters, food courts, restaurants and “Something Unique For This Christmas Season” carts will survive along with this. Margins are tightening up even more. Caution! You must be a big box retailer, a corporate chain rag store or an immigrant with solid connections back in the home country (or to people buying in China) to buy product at a low enough price in container size loads. The native American owned small independent retail store is an extinct business model. You cannot buy from domestic USA wholesalers, resell and live.

Think about the stores that have already disappeared from most malls.

— Bookstores.

— Independent electronics retailers. That local space is broadly down to Sears, Best Buy and Walmart. Only Sears is present inside the malls.

— Music and video stores have terminal diagnoses.

— Small housewares. Only anchor big box retailers still handle these inside the malls. Sears, Macy’s, etc.

— Childrens clothing.

2. It’s all the strip centers around the malls and located near residential neighborhoods that are in big trouble. Here we can start talking about 25% – 50% vacancy rates. Anyone holding their breath waiting for consumer retail to lead a recovery can breathe now. We are in for decades of stagnant and declining local retail/commercial real estate prices along with vanished jobs. This sector is even more overbuilt than residential housing.

— We have already lost the store front video rental stores and travel agencies. The store front insurance agencies are following close behind. All three were killed by the Internet. Mortgage companies? Surely one jests!! (Falstaffian laughter) Branch banks are also starting to close in rising numbers. Borders, B.Daltons and Waldenbooks are in advanced decomposition. Books A Million will follow them soon enough.

— Office Depot, Office Max and Staples are clearly on the way out. Q. What do they sell that Walmart/Sams/Amazon/eBay doesn’t? A. Nothing. That front corner of copy & printing services is not enough to sustain them.

— Target is a tough call. Despite the current high share price (due to 2% cash dividend at current price) I see Target disappearing along with its lower middle class base. Target does not sell food. Go to any Walmart Supercenter and watch. At least 75% of the customers at any moment are in the grocery or pharmacy areas. Even the people in the non-food merchandise area have lots of food items in their baskets.

— Furniture. This business generally moved to a local showroom/regional hub n spoke delivery system over a decade ago. Ikea has been the major semi-exception. Although what Ikea has really done is extend the Sam’s Club format to furniture.

I think the next move will be to robotic factories making furniture to order from standard components such as Medium Density Fiberboard, standard steel and aluminum mill shapes, glass, fabrics and other synthetic coverings. “Furniture” consumes a lot of air in transit and incurs inventory holding costs. Even disassembled furniture incurs high inventory costs due to the diversity of product designs. It’s best to ship this stuff around as bulk commodity raw materials that are palletized, carried on flat bed trailers and handled by forklifts (which will begin to lose their human operators). We already know that stepper motors and computers are eliminating the profit formerly available from long distance labor arbitrage.

— Car dealerships. A casual drive down any major retail thoroughfare will show the large and growing number of vacant car lots and abandoned showroom and service buildings.

— Cell phone, smart phone and tablet dealers and 4G network subscriptions. Considering that Walmart handles all the major providers and hardware, this field is clearly overpopulated. Many more vacant storefronts are enroute.

— Local appliance dealers have been in mortal danger ever since Home Depot and Lowes started selling major appliances. btw, Home Depot and Lowes both use Sears’ appliance service network to do their appliance warranty and repair work. This is another reason for SHLD’s seemingly magical powers of share price levitation.

— Non-mall local retail is swiftly resolving to Walmart, Home Depot, Lowes, major grocery chains and Ace/True Value Hardware stores.”


Thank you, Marc, for sharing your experience and observations. Jim Quinn of The Burning Platform blog has issued an eye-opening analysis of “big-box” retail overbuilding that concludes big-box retail is overbuilt as well: Are You Seeing What I’m Seeing?

The most troubling aspect of the shift to online shopping and networked distribution directly to consumers is the destruction of jobs. I have often addressed the consequences of technology and globalization, a topic I call “the end of work.” For example, Labor Day 2012: The Future of Work (September 3, 2012)

The optimistic view is that technology will create more jobs than it destroys. I see little evidence of this in the real world. Many high-tech industries that are viewed as magical engines of growth–for example, biotechnology–are limited in scope and employment. The reality is there are few “blockbuster” drugs or applications that scale up to make a lot of money. If you issue 100,000 PhDs a year in bioscience, it doesn’t follow that they will all find jobs waiting for them.

Retail has long been a source of both low-skill entry-level jobs and well-paid careers. Yes, people love to browse and stroll down the mall or shopping district, and this social/novelty function will continue. But can retailers make money off of people browsing? If retail contracts, what does this do to skyhigh commercial property valuations?

The same can be asked of cubicle-farm office parks. As telecommuting and contract labor expand, the need for energy-wasting office parks and long commutes will also decline.

Technology cannot be stopped, and neither can the drive to cut costs by cutting what can be cut, labor. We can legislate certain aspects of how technology is used, and fiddle with tax incentives and trade restrictions, but we cannot make people drive somewhere to go shopping or stop the 3-D printing/fabrication revolution.

What all this calls into question is the entire financialization (debt-based)-consumerist model of “growth” and employment. Decades ago, young men were employed to pump gasoline at gas stations; these jobs all went away as self-service fueling became the norm. At least one state (Oregon, I believe) mandates that all gasoline is pumped by an employee of the station. This rule has created hundreds of jobs that are not necessary in terms of market-demand but that are certainly welcome.

Choices like this will have to be made on multiple levels.

It doesn’t help labor that the U.S. sickcare system costs twice as much as our developed-economy competitors pay, and this acts as a 9% of GDP ($1.4 trillion) tax on labor. It also doesn’t help that parasitic banks and cartels effectively tax our economy with their skimming.

It’s all related: technology that eliminates labor, high costs resulting from cartels, fraud and crony capitalism and the follow-on consequences of those technologies.

Source: http://www.zerohedge.com/news/guest-post-inevitable-decline-retail

2 comments

  1. …as a retired business executive and educator…who spent 25 years traveling the world and teaching different cultures about communications, management and managing diversity…I think the author is correct…to a degree…however, until the consumer grows up, and understands the process of emotional targeting of their perceived needs and desires…the “retail” aspect of things will stay the same…it is the sale and delivery of the “goods” which will continue to shift…away from big-box stores…but always remember, they are targeting your basic needs first…” safety & security”…then they come after your need to “belong”…until they have you by the hook and attack your sense of “prestige”…by then, you have usually purchased…so I do see a great deal of change in the advertising business, how to move the masses to continue buying…but on a local level, you will still see a core of “retail” needs being met ….IMHO…
    Regards,
    RJ O’Guillory
    Author- Webster Groves-The Life of an Insane Family

  2. Interesting thoughts on retail. I work for McGladrey and there’s a white paper on the website about this very topic, readers will find it interesting. http://bit.ly/JDHmUU It describes several issues impacting retail sales, closures and acquisitions.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>