The Fall of Traditional Retail?

Since the dawn of the internet the downfall of traditional retailers has long been prophesized.  Couple this with the rise internet retailers and the prophecy is looking more and more like reality. Department stores like Sears, Macy’s and JC Penny have long been a staple in the American retail space, but their reign as the go to store is quickly diminishing.

While the heyday of department stores was the 60s and 70s the late 90s provided a revitalization of sorts. China’s induction into the World Trade Organization was a perfect storm, providing stores with cheaper goods which increased consumer desire.  Over the last 20 years apparel prices in the US have dropped around 20% while increasing the demand by 70%.  (The average person bought 85 pieces of clothing last year, I know we sure didn’t!) This all gave way to increased profits, at least until the rise of e-commerce.

While the internet was created in 1990, consumers were still too weary of online retailers. People continued to gravitate to brick and mortar stores until the allure of cheaper goods was too much.  E-commerce really started to take shape in 2006 and has since become a thorn in the side of traditional retail.  Buoyed by lower overhead, online retailers have an advantage over their physical store rivals by having cost bases 3-4% cheaper and sales with 13-17% deeper discounts.   Since 2006 online sales have doubled while the sales for physical stores have fallen by almost 40% to $157 billion.

While the retail marketplace continues to work itself out expect to see changes.  Many department stores are already shutting down some stores to cut costs.  It has even been estimated that 1/3 of all malls in the US could shut down in the next five years.  Hopefully these American staples will adapt like others in the space have, but unfortunately only time will tell.