There's one major thing everyone gets wrong about Amazon and the retail apocalypse

Dead Mall

Amazon and the rise of online shopping have been repeatedly blamed for the staggering rate of store closures and bankruptcies disrupting the retail industry in the US.

But e-commerce accounts for only a small fraction of the problems pushing many American retailers to the brink of death, according to Doug Stephens, a retail-industry consultant.  

"It's mathematically impossible for it to be Amazon’s fault," Stephens said.

Online sales are growing rapidly — up 15% in the most recent quarter compared to 4% for total retail sales.

But total e-commerce sales account for just 8.5% of overall retail sales in the US. The other 91.5% of purchases are still made in brick-and-mortar stores, according to the US Census Bureau.

So what's sending mall and store traffic plunging, if most purchases are still made in stores? Screen Shot 2017 07 21 at 12.16.57 PMThere's no single driver behind the decline of retail stores in America, and the effect of online sales growth certainly can't be ignored. 

But there are two other factors that arguably play an even bigger role: excess retail stores and shoppers' changing consumption habits.

Retailers expanded rapidly in the 1990s, blanketing the US with hundreds of shopping centers and strip malls under the expectation that demand would follow.Online versus in store purchases chart_03

Demand never quite caught up and then the recession hit, resulting in a sharp contraction in discretionary spending, says John Clapp, a professor at the University of Connecticut's Center for Real Estate.

"Now there's two or three times more retail space per person than we need in the US," Clapp says.

The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia, the next two countries with the most retail space per capita, according to Morningstar Credit Ratings.

Too much excess retail space has led to a drop in retail sales per square foot in the US. A company like Sears would need to close nearly half its stores to restore its sales per square foot to 2006 levels, according to the real estate analytics firm Green Street Advisors. 

Screen Shot 2017 07 21 at 3.37.13 PM

Many retailers expected sales to bounce back after the recession. But that never happened for a majority of mall-based stores, primarily because people changed their shopping habits.

"People are making more discerning decisions about what they buy, where they spend, and how they spend," Stephens says. 

Specifically, shoppers are buying more experiences than things. 

Stephens says this trend, which has been particularly devastating to apparel retailers, is due in part to the rise of social media.

"Experiences make a better story on social media than things," he says.

Screen Shot 2017 07 21 at 4.00.20 PMAdd to that shoppers' growing expenses in other categories, such as health care, technology, and education, and it's evident why shopping mall visits have been declining over the last decade. 

When shoppers do buy "things," they mostly likely aren't paying full price — a habit they learned during the recession that has stuck around since then. Discount stores like TJ Maxx, Marshalls, and Ross Stores are thriving, while full-priced department stores such as Sears and Macy's are struggling.

E-commerce will eventually play a bigger role in the overall retail economy due to its rapid growth, but for now, it can't be blamed as the main source for retailers' troubles.

SEE ALSO: More than 5,000 stores are shutting down — here's the full list

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Contributer : Tech Insider http://ift.tt/2gSnOrn
There's one major thing everyone gets wrong about Amazon and the retail apocalypse There's one major thing everyone gets wrong about Amazon and the retail apocalypse Reviewed by mimisabreena on Saturday, July 22, 2017 Rating: 5

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