The economic boom of 2016 and 2017 is markedly absent in the earnings reports by large retailers, and you don’t have far to look to find the answer to why this is happening.
Retail stores and the malls that they anchor are being put in the bad position of having to compete against online retailers — many of whom offer next-day shipping for free, a wider range of sizes and colors of items, and a more comprehensive catalog online.
While standalone retailers are having trouble as evidenced by the recent bankruptcy by Payless Shoes and store closings by Sears, Macy’s, J.C. Penney and RadioShack, the impact to shopping malls is amplified by the trends towards online buying and overall sluggish retail sales.
There are several important trends impacting retail in general, and aggregated shopping malls in particular.
Restaurant Renaissance
There’s a fundamental shift going on with the American consumer, and that is a move away from materialism and towards spending more quality time with friends and family. If you’re young consumer in the key demographic for retail — that likely means going out to eat, which in turn share of pocket away from retail establishments and the shopping malls that they support.
This rapid rise in restaurant spending led American consumers to spend more money on eating out in restaurants than they spent buying groceries for the first time ever in 2016, and sales continue to be strong for eating establishments and bars.
There’s more to this than simply spending time with friends, however. It’s important to note that going to a mall doesn’t make nearly as good of a selfie opportunity as finding that perfect cocktail or an insanely beautiful appetizer. To think that our spending habits are now driven by our desire to find the ideal image to post to Instagram should be outrageous, but it’s an unfortunate fact of a new generation.
More Expensive Workforce
Perhaps one of the biggest challenges faced by today’s shopping malls and other large retails is the impact that the workforce has on their cost of goods, and how online retailers are able to reduce the labor cost significantly by removing service people from the equation.
Labor rates continue to climb, with low-paid sales staff being some of the first to receive a bump as higher hourly minimum rates are voted in across the country. Organizations like Lowe’s and McDonald’s are looking for ways to replace their human staff with robotic helpers or kiosks, a move that’s already transpired and been accepted in grocery stores with self-checkout lanes.
Retailers everywhere are looking for ways to bring costs out of the labor line and into upfront technological advances that provide long-term competitive advantage instead of short-term lower costs.
Disruptive Technology
Aside from replacing service staff with robotic alternatives, technology in general has been incredibly disruptive to shopping malls.
One of the key reasons that people would travel to a shopping mall and suffer through the long walking distances, frustrating crowds and challenging customer service was to be able to find everything in one place. Now, technology is able to provide you with a similar shopping experience online at Amazon.com and other large e-commerce retailers. Single-store shopping has much less appeal to busy shoppers than being able to shop while you’re in line at the doctor’s office and have items from several different retail brands delivered to your home the next day to await your convenience.
There are additional challenges with physical malls, such as the cost of prime real estate that’s often in suburban areas. There are significant overhead costs that have to be passed along to retail partners who are already buckling under the high costs of materials and labor.
Direct to Consumer Channels
If competing against e-commerce giants such as Amazon.com and eBay.com isn’t enough, shopping malls must also contend with direct-to-customer retail sales from each of their anchor stores — and many of the smaller retailers as well. While some retail chains that inhabit malls such as Claire’s Boutique and Justice Shops target tweens who are unlikely to shop online, even these stores now have a robust e-commerce engine for last-minute shopping or those who prefer to shop from home or their phones.
There are many challenges facing shopping malls in the future from a variety of fronts, but those industrious business leaders who continue to introduce new concepts, experiential shopping and exciting eating opportunities may survive the coming shifts.
Regards,
Ethan Warrick
Editor
Wealth Authority
