The Roman Emperor Trajan, most famous for conquering the region of Dacia in modern-day Bulgaria and building the world’s biggest column to brag about it, also built a series of marketplaces in ancient Rome stacked upon one another that sold everything from dried fish to silks brought from half the world away.
Trajan’s marketplace was the first shopping mall in the history of the world, but by no means the last. No nation embraces shopping on a large scale quite like the United States, where we have about one thousand malls from coast to coast; Connecticut leads the way with one for every 4000 persons.
On the surface, America is the most fertile retail market on planet Earth. Longer-term trends, however, are putting a major squeeze on the largest corporations that sell everything from apparel to car batteries. There have been nine retailers file for bankruptcy through the first three months of 2017, as many as all of 2016.
The biggest names on the market, including Sears and Macy’s, have announced that they would close over 100 stores each. If you were lucky enough to get through the door for Sports Authority’s liquidation sales, you could have been able to buy running shoes for a fraction of the tag price.
Clothing companies like American Eagle are trading at their lowest value in the span of a decade. Many brick and mortar stores, including those with a Fortune 500 tag attached to their brand, are facing closure and hoping for miracles.
The reason is not a declining economy (note the S+P 500 has grown almost 15% since Trump’s election) nor a decrease in retail spending (Christmas sales exceeded $1 trillion for the first time in history). Rather, the transformation of spending is the result of the online shopping revolution.
In 2010, online shopping accounted for just one dollar out of every fifty spent in retail; today the number is one in five. The biggest boys on the online marketplace have soaked up the vast majority of the benefits, and no boy in the retail industry is bigger than Amazon.
It’s not just that Amazon’s sales have quadrupled; it’s that they’ve quadrupled from $16 billion to $80 billion, rocketing the company up to the number four slot for global market capitalization. Put another way, Amazon has added the equivalent of three Sears’ worth of total sales to their company since 2010.
If Amazon may be the biggest success story, it’s far from the only one. Startup online retailers have also found themselves high on the hog: the men’s clothing company Bonobos, founded in 2007, had the good fortune to bring their products onto the e-market at the same time that apparel became the most popular online shopping item.
The advantage of online convenience is hugely hard for physical stores to match. Not only can customers browse from the convenience of their homes, but mobile apps for payment (such as Apple Pay) have made it easy and safe to buy items with a single click, rather than arduously fill out credit card numbers and billing addresses.
Where people might have gone to several stores 20 years ago to purchase a television or even a car, comparing prices and performance online is as simple as opening a new tab; what’s more, retail stores counted on “adjacent” purchases for much of their revenue. Someone who went shopping for milk might also pick up laundry detergent, a trend that’s far less common when online shopping.
Another factor is over-saturation of physical retail stores. The number of new malls increased faster than the overall population growth during the past 50 years, leading to more and more stores competing for relatively fewer customers.
The Great Recession, brought to you by the Democratic pork barrels of Freddie Mac and Fannie Mae in conjunction with Obama’s spendthrift bailouts, decreased the number of mall visits by a devastating 50%. Think how often you went to a mall to shop 10 or 15 years ago in comparison to today, then multiply that figure by 320 million other Americans.
Is it possible to reverse the downward slide and provide much-needed relief for mom and pop stores? One major advantage is Trump’s decision to pull out of the Trans-Pacific Partnership, which would have been an even more significant anchor on small businesses by opening them up to competition from overseas.
Some economists believe that the introduction of self-driving cars could be a huge boost to brick-and-mortar shops by eliminating frustrations like traffic and parking. Physical stores that incorporate drone delivery will be able to bring their products to customers, rather than the other way around.
It’s not clear what the future of retail holds, but it’s clear that in the short term, the biggest physical retail stores are the ones with the most to lose on the market.
Regards,
Ethan Warrick
Editor
Wealth Authority
