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The 'retail apocalypse' is a myth

Mike Elgan | Oct. 23, 2017
Online shopping is killing brick-and-mortar retail, right? Wrong! The reality is better than you think.

Amazon is even opening a pop-up bar for selling alcoholic drinks in Tokyo.

Clearly the No. 1 online shopping company believes in physical stores.

Amazon's moves into physical retail is part of a much wider trend. Google, which started out as a search engine company, is also getting into retail sales. The company started selling the Pixel 2, Pixel 2 XL and Google Home Mini in pop-up stores (temporary or seasonal stores) in New York City and in Los Angeles on Thursday, with plans to continue selling through the end of the year. (Previous pop-ups offered only demos, not sales.)

Earlier this month Starbucks actually closed its online store for items like coffee beans, coffee mugs and espresso machines in order to focus on brick-and-mortar retail store sales offering those same items.

Online glasses retailer Warby Parker has opened at least 50 physical store locations. And mattress-by-mail e-commerce success story Casper is getting into physical retail; it plans to open 15 physical locations this month.

The big question is: Why are successful online retailers rushing into brick-and-mortar stores?

 

The correct answer is: all of the above'

The "retail apocalypse" narrative results from splashy headlines and anecdotal observations about big-name closures and bankruptcies. But the data tells another story.

The National Retail Federation (NRF) expects total retail sales to grow around 4% this year. And, yes, e-commerce is growing faster than brick-and-mortar. But crucially, physical stores are still growing - at a rate of nearly 3%.

Despite the headlines, the fact is that physical stores represent the overwhelming majority of all sales, and will continue to do so for decades. In fact, only around 10% of all sales are from online stores. The rest is good old-fashioned stores.

So what's going on?

Part of the story is that the retail industry is correcting for past mistakes. The biggest of these is wild over-construction of malls in the 1970s, '80s and '90s. Currently, the U.S. has some 1,200 malls, which is simply too many. U.S. rates of shopping space per capita is many times more than other wealthy countries.

Mall closures are a correction - the U.S. economy is moving from "too many" to "just the right number" of malls, and it looks like the mall idea is dying. It's not.

What's really dying is the bad mall idea.

In the heyday of mall construction, the model was to bring in two or three "anchor stores," which were big department stores like Sears, Macy's or JCPenney. Then, you'd attract a smattering of boring mall stores, including candle stores, sneaker retailers and clothing stores.

 

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