Let’s start with this: The retail industry is not dying and likely never will. Perhaps it’s got the sniffles right now, but it always seems to get back on its feet in due time.
Consumers will probably always need and want to shop for “things,” ranging from bottled water and Brussels sprouts, to socks and swimsuits, to smartphones and, now, smart refrigerators and smart cars. And although our shopping behaviors may be changing, retail players are changing, too—some more quickly than others.
“Retail sales numbers continue to show that the consumer is still out here buying things, lots of things,” said JJ Kinahan, chief market strategist at TD Ameritrade.
Let’s Call it “Amazonification”
As the economy strengthens, so, too, do overall retail sales figures. People are shopping. For the first quarter of this year, retail sales rung up an estimated $1.25 trillion, according to the Census Bureau. That’s an increase of 1% from the fourth quarter and a year-over-year increase of 5.1%. That means consumers spent $64 billion—yes, with a b—more in the first three months of this year than they did a year ago, and it wasn’t necessarily just thanks to higher prices.
So what’s the problem? The swing in spending from traditional brick-and-mortar retailers. Many are among the some 3,500 stores that have already or are now closing their doors and declaring bankruptcy in record numbers. Consumers are flocking to e-commerce, led by online retailers such as Amazon (AMZN).
“Brick-and-mortar retailers are clearly having problems because of the ‘Amazonification’ of the industry,” Kinahan said. “Its impact has been challenging for the industry, but it’s up to traditional retailers to figure out how to capture, or recapture, that consumer.”
There’s That Disruptive Word Again
It has often been said that retail is a Darwinian business, as it follows Charles Darwin’s survival-of-the-fittest theory. That’s been true since the days of bartering for food and goods, as well as the corner general store. And it will likely still be the case years from now when our vacations include space travel and one-hour flights to Antarctica, the hottest destination on the planet.
Foot traffic at shopping centers and malls, earnings reports, and grim outlooks from the chief executives of some of the nation’s largest retailers may make it seem like e-commerce is winning, but it’s not. At least, not yet.
Yes, e-commerce sales are growing like weeds, but many experts point out it’s from a small base. And big gains off small bases can still be considered small. According to the Census Bureau’s first-quarter wrap-up, e-commerce sales climbed year over year by 4.1% to $105.7 billion but still account for only 8.4% of total sales in the quarter. Remember that total sales in the first three months of this year were $1.25 trillion.
Consumers Still Like Stores
Let’s go back to Darwin for a moment: His theory of natural selection has been described as “descent with modification.” Does that not best portray the 200-plus-year pedigree of the retail industry? It’s still a marketplace today, but modified for our technological times.
Retail survivors are adapting their business models and strategies to appeal to a newfangled shopping “experience” that ranges from buying a couch from your couch to sitting on a couch in a chic warehouse space, sipping champagne, while clothes are brought to you.
And they’re doing it with generations of “digital natives” in mind: those millennial and now Generation Z consumers whose sense of what’s happening around them digitally, and yes, culturally, is intrinsic to everything they do. Millennials are said to crave experiences over material things, and Gen Z may as well. But it turns out both generations like to go to stores, according to retail analysts. They want a healthy brick-and-mortar sector, spirited and dynamic in look and function.
“Customers still like stores,” Oliver Chen, senior retail analyst at Cowen and Co., said on CNBC recently. “Despite all these headlines, customers enjoy going to stores.” In a recent Retail Dive study, the industry newsletter found that 62% of women and 59% of men said that despite the surge in e-commerce capabilities, mobile apps, and other technology advancements like voice-activated shopping, they still want to see, touch, and feel products. And they want the immediate gratification of taking those new things home.
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