What’s driving the US retail apocalypse?

  • News
  • June 15, 2017
What’s driving the US retail apocalypse?

The term ‘retail apocalypse’ has become overused to the point of desensitisation from readers. A new store closes almost every day in America, adding to the ‘retail fire’. But what is happening overseas, and are we in the firing line?In the middle of an economic recovery, hundreds of shops and malls over seas, primarily the US, are shuttering.

In the US, there have been nine retail bankruptcies from national chain retailers of significant size in the first three months of 2017 alone—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures.

Mall traffic is apparently sagging and department store sales have been in decline since 2001. 

Twenty years ago, the internet was just a blip on the radar but now its sales are more than three times that of department stores. Adults and children alike are changing their shopping habits to ecommerce, which has seen a massive jump since 2002.

Several trends—including the rise of ecommerce, the over-supply of malls, and the surprising effects of a restaurant renaissance have conspired to change the face of American shopping.

The simplest explanation for the demise of brick-and-mortar shops in the US is that online is eating retail. Between 2010 and last year, Amazon’s sales in North America quintupled from $16 billion to $80 billion. 

There will always be a place for stores. People like surveying glitzy showrooms and feelings a stores experience. But the rise of ecommerce not only moves individual sales online, but also builds new shopping habits, so that consumers gradually see the smaller stores as a good-enough replacement for their local mall.

There are about 1,200 malls in America today. In a decade, there might be about 900. That’s not quite the “the death of malls.” But it is decline, and it is inevitable.

Consumers are wanting to spend more money on experiences, rather than retail and department stores. In the US hotel industry, occupancy is booming. Domestic airlines have flown more passengers each year since 2010, and the rise of restaurants is even more dramatic. In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.

There is not so much a lack of spending as there is a growth for the want of social gatherings and ‘Instagramable’ experiences. Consumers are looking for places they can enjoy, recommended and share, not just over stocked department stores that service the purpose of a quick buy that can be done online.

Can this retail apocalypse come to New Zealand?

Absolutely. It may take longer because of our geographical location and our laid back attitude towards almost anything. But as our political parties complain about avocado on toast over the housing crisis, it is clear that premium buyers are looking for the experience, rather than the convenience malls bring.

Wainuiomata mall has slowly been closing down its retail sector. The updated plans to revive the mall include only that of putting smaller shops, café and takeaways outside.

Hamilton’s CBD mall is the pinnacle of given-up: Christmas decorations stay up until mid June and homeless often sleep within. Many of the retail stores inside the premises are up for lease.

Invercargill's South City mall sold for only $1.8 million at auction, a low price for the mall that had a $250,000 renovation in 2015.

With malls, especially in rural areas, there is a struggle to attract enough foot traffic to keep the stores open. And without store owners being able to pay their lease, the malls will inevitably have to close, which is how the retail apocalypse began.

Despite this, according to Stats NZ 2017 Retail Trade Survery, retail spending this year has risen 1.5 percent. While nine of the 15 industries had high sales volumes and the total value of retail sales rose 2.6 percent.

Retail is not dying, it just moving. As consumer habits change retailers much adapt to survive by working on in store experience or their ecommerce platform.

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