Can traditional stores survive the online onslaught?

Executive Summary

U.S. retailing, an industry that employs one in 10 American workers, is experiencing a profound disruption. A combination of technological change, massive overbuilding and a seismic shift in how consumers shop has created what one business writer called “the retail meltdown of 2017.” The relentless growth of Amazon and other e-commerce sites has taken a huge toll on traditional outlets: Since the start of the year, 2,800 stores have gone under, taking 55,000 jobs with them, and retail bankruptcies are up 31 percent. The stores filing for bankruptcy protection include well-known brands such as RadioShack and The Limited, and even bigger names – Sears, J.C. Penney and Macy’s – are struggling to stay afloat. The outlets that are surviving, such as Apple and Home Depot, are emulating Amazon by embracing technological innovation rather than resisting it, industry analysts say.

Among the key takeaways:

  • Although e-commerce accounted for less than 12 percent of all retail revenue last year, it grew more than 15 percent, while overall retail revenue rose by less than 4 percent.

  • In addition to shopping online more, U.S. consumers are spending less on clothes and more on food and travel.

  • The decline in retail employment will likely hit women and lower-income workers especially hard, because they hold a large percentage of the most threatened jobs.

Resources for Further Study

Bibliography

Books

Beckford, Mahogany, “The Little Book on Big Data: Understand Retail Analytics Through Use Cases and Optimize Your Business,” Amazon Digital Services, 2016. A digital marketing specialist reviews business analysis methods, techniques and tools, using case studies from business startups to illustrate her points.

Dart, Michael, and Robin Lewis, “Retail’s Seismic Shift: How to Shift Faster, Respond Better, and Win Customer Loyalty,” St. Martin’s Press, 2017. Two retail industry experts say Amazon’s online model has become the norm in the retail industry. They also confirm that today’s shopper values access over ownership and experience over material goods.

Lewis, Robin, and Michael Dart, “The New Rules of Retail: Competing in the World’s Toughest Marketplace,” St. Martin’s Press, 2014. The authors explain how, in an age of technology and globalization, retailers need three competencies to survive: an ability to anticipate and respond to changing consumer demands; a deep connection with consumers; and control of the “value chain,” the activities taken by the manufacturer, warehouse, carrier and supplier of a product as it makes its way to the consumer.

Stephens, Doug, “Reengineering Retail: The Future of Selling in a Post-Digital World,” Figure 1 Publishing, 2017. A retail industry futurist predicts that artificial intelligence will redefine the industry and argues that Amazon’s experiments with technology will drive other retailers to greater levels of innovation.

Articles

“Sorry, we’re closed: The decline of established American retailing threatens jobs,” The Economist, May 13, 2017, http://tinyurl.com/kepkv6b. America’s changing shopping habits have hurt sales at traditional retailers but have helped discounters such as T.J. Maxx and Ross, says the London-based weekly magazine.

Petro, Greg, “Four Reasons Why A Government Bailout For Retailers Is Inevitable,” Forbes, June 6, 2017, http://tinyurl.com/y8o4rwvy. The founder of a technology company specializing in retail argues that the struggling sector could be primed for a government bailout to provide traditional retailers with debt relief and time to “innovate and explore new tech innovation in manufacturing, lead time reduction and predictive modeling.”

Thompson, Derek, “What in the World Is Causing the Retail Meltdown of 2017?” The Atlantic, April 10, 2017, http://tinyurl.com/mq62ocj. A senior editor lists three reasons why it has been a “disastrous” two years for retail: online shopping; an overabundance of malls and stores; and a change in consumer preferences from material goods to experiences.

Wingfield, Nick, “Amazon’s Ambitions Unboxed: Stores for Furniture, Appliances and More,” The New York Times, March 25, 2017, http://tinyurl.com/khg8rg7. A reporter chronicles Amazon’s foray into the brick-and-mortar retail space as it considers a plan to create grocery, furniture, appliance and electronics stores.

Reports and Studies

“Deep Dive: The US Retail Revolution Solution,” Fung Global Retail & Technology, July 7, 2017, http://tinyurl.com/ybzxt4ej. A retail technology firm shares some potential solutions for retailers challenged by intensifying competition and higher e-commerce penetration, including closing stores and improving delivery speed.

“Retail, Wholesale, and Distribution Industry Outlook 2017,” Deloitte Center for Industry Insights, 2017, http://tinyurl.com/zqyms8g. The professional service giant posits that disruption is “the new normal” and suggests that companies in retail, wholesale and distribution should enable technology to prepare themselves for “a range of probabilities.”

“The State of Retail 2017,” TimeTrade Systems, March 13, 2017, http://tinyurl.com/y9gzggb9. Researchers at the online appointment scheduling firm argue that the rise of online shopping will not put the brick-and-mortar retail industry out of business, but concede that physical stores “have to change to keep up with the trends.”

“The State of Retailing Online 2017: Key Metrics, Business Objectives and Mobile,” National Retail Federation and Forrester, January 2017, http://tinyurl.com/y7b54luh. The annual study examines the impact of e-commerce and provides key metrics for benchmarking digital business. Its authors call digital commerce “a priority as U.S. retailers seek growth.”

“Uniquely Gen Z,” National Retail Federation and IBM, January 2017, http://tinyurl.com/y8hhwabw. The first of a three-part global study explores the technology preferences, cyber-savviness and economic influence of Generation Z – the post-Millennial generation.

Hodson, Nick, Christopher Perrigo and Douglas Hardman, “2017 Retail Industry Trends,” PwC, 2017, http://tinyurl.com/y8rfn4ms. Three retail experts conclude that omni-channel strategies to synchronize e-commerce and physical-store efforts have largely failed, as they have not stopped the decline in store activity or improved profitability.

Hortaçsu, Ali, and Chad Syverson, “The Ongoing Evolution of US Retail: A Format Tug-of-War,” Fall 2015, American Economic Association Journal of Economic Perspectives, http://tinyurl.com/yc95kdaq. Two University of Chicago economics professors compare the impact of warehouse clubs and supercenters versus e-commerce on the retail industry.

The Next Step

Government Impact

Bain, Marc, “Anxiety among Hispanics in the Trump era is taking a bite out of US retail sales,” Quartz, July 18, 2017, https://tinyurl.com/y9gzl78g. Hispanics are spending less money this year at retailers than in 2016 because they are uncertain about their futures after President Trump’s comments about immigrants.

Jagoda, Naomi, “Pence sells Trump’s tax-reform plan to retailers,” The Hill, July 18, 2017, https://tinyurl.com/y8vhpkxq. Vice President Mike Pence told a National Retail Federation event that the White House’s plan to lower corporate and individual tax rates would help retailers grow and be competitive.

Mercado, Darla, “Despite President Trump’s tweet, Amazon already collects sales taxes,” CNBC, June 28, 2017, https://tinyurl.com/ycbec3bw. Trump recently criticized Amazon for not paying “internet” taxes, even though the e-retailer began collecting sales taxes on April 1 in all 45 states that levy the tax.

Green Retail

Cadet, Dayana, “Millennials Going Green Means Retail Must Follow,” Total Retail, May 24, 2017, https://tinyurl.com/y9qt3l43. Millennials spend about $600 billion annually in the United States – and a determining factor in their shopping decisions, even more than brand loyalty, is the environment.

D’Innocenzio, Anne, “Back-to-school shoppers look for eco-friendly clothing,” The Associated Press/The Seattle Times, July 17, 2017, https://tinyurl.com/yaojhcnm. As more consumers become environmentally conscious, retailers such as Target and J.C. Penney are creating more sustainable and eco-friendly products.

Vij, Vikas, “Target Aligns CSR with UN Sustainable Development Goals,” Triple Pundit, July 20, 2017, https://tinyurl.com/y8mmza3c. Target’s recently published Corporate Social Responsibility Report for 2016 charts ongoing progress in creating sustainable packaging, carrying more organic food and reducing water and energy waste, steps that the corporation has taken as part of its global sustainable development goals.

Opposition to Amazon

Abrams, Rachel, and Robert Gebeloff, “In Towns Already Hit by Steel Mill Closings, a New Casualty: Retail Jobs,” The New York Times, June 25, 2017, https://tinyurl.com/y8j9fevv. E-commerce sites such as Amazon are creating new economic problems in U.S. communities that were already struggling because of job losses.

Bartz, Diane, “Retail workers union opposes Amazon’s purchase of Whole Foods,” Reuters, July 17, 2017, https://tinyurl.com/ya72bjlp. The United Food and Commercial Workers Union is asking the Federal Trade Commission to scrutinize Amazon’s recent purchase of Whole Foods. The union says Amazon poses a threat to the retail economy.

Gurdus, Elizabeth, “Cramer: This market is scared of Amazon, and it’s fighting back,” CNBC, June 22, 2017, https://tinyurl.com/y74jzekd. The “Mad Money” host asserts that as Amazon’s dominance in consumer-driven sectors grows, companies such as Walmart and Oracle are standing up to the e-commerce giant.

Adaptation

Dennis, Steve, “Physical Retail: Definitely Different, Far From Dead,” Forbes, July 6, 2017, https://tinyurl.com/yd35mzcm. E-commerce still represents less than 10 percent of total retail sales and is not killing physical retail, but is instead forcing companies to rethink their business models, according to a retail growth and innovation advisor.

Matthews, Christopher, “The debate over the ‘death of retail,’” Axios, July 16, 2017, https://tinyurl.com/y7s2b4sf. Many people believe the retail industry is dying and has not adapted to or incorporated new technologies, but an economist suggests the industry is creating jobs and becoming more productive in ways that traditional labor statistics cannot accurately capture.

Wahba, Phil, “The Death of Retail Is Greatly Exaggerated,” Fortune, June 9, 2017, https://tinyurl.com/ycl26mjd. A high number of store closings and bankruptcies are not indicative of a catastrophe for retail, a Fortune writer argues; apparel chains and department stores are struggling the most, but other retailers that have adapted to new technology and consumer behavior, such as Walmart, Costco and Best Buy, are doing quite well.

Organizations

International Council of Shopping Centers
221 Avenue of the Americas, 41st Floor, New York, NY 10020-1099
1-646-728-3800, Option 1
www.icsc.org/
The global trade association of the shopping center industry.

National Federation of Independent Businesses
1201 F St., N.W., #200, Washington, DC 20004
1-877-433-0390
www.nfib.com
An association of 325,000 small- and independent business owners whose self-defined aim is to level the playing field with big business, government and labor in the areas of taxes, health care and regulations.

National Grocers Association
1005 N. Glebe Road, Suite 250, Arlington, VA 22201
1-703-516-0700
www.nationalgrocers.org/
The national trade association representing the retail and wholesale grocers who make up the independent sector of the food distribution industry.

National Retail Federation
1101 New York Ave., N.W., Washington, DC 20005
1-202-783-7971
www.nrf.com
The world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers and other retailers from the United States and more than 45 other countries.

Retail Industry Leaders Association
1700 N. Moore St., Suite 2250, Arlington, VA 22209
1-703-841-2300
www.rila.org
An association for retail industry leaders that conducts advocacy, education and networking.

Shop!
4651 Sheridan St., #470, Hollywood, FL 33021
1-954-893-7300
www.shopassociation.org
A global nonprofit trade association specializing in consumer behavior research, customer experience design and in-store marketing technology.

World Alliance for Retail Excellence & Standards
PO Box 650713, Sterling, VA 20165-0713
1-309-431-4177
www.retailworldalliance.com/
A nonprofit trade association representing retailers, manufacturers and servicing companies involved in the in-store experience.

DOI: 10.1177/237455680323.n1