Love The Retail Apocalypse
The hit 80s movie Fast Times at Ridgemont High recently turned 35 years old. For anybody who grew up during that period, it evokes memories that are both nostalgic and quaint. Back then, social life revolved around, of all things, a shopping mall, where kids would go to shop, gossip and work.
Today, of course, you won’t find many kids hanging out at at mall. Why would they? They can shop, gossip and work online. Go to a shopping mall today and you’re more likely to find liquidation sales and empty stores. The ones that remain open tend to be understaffed and poorly trafficked.
Welcome to the retail apocalypse. The rise of e-commerce, combined with a shift in consumer preference towards dining out over shopping and years of overbuilding, has resulted in unprecedented retail closings. That’s clearly bad news for the affected retailers, but it might prove to be a boon to everyone else. Here’s how you can win from the downfall of retail.
More and Better Paying Jobs
The first concern about the implosion of retail is the effect on jobs. Clearly, all those stores were more than just places to buy things, but a source of income for thousands of Americans. When stores close, those jobs disappear.
Yet Michael Mandel, an economist at the Progressive Policy Institute argues that the data tells a very different story. First, using data from the Bureau of Labor Statistics, he shows that the jobs gained from ecommerce far outstrip those lost from traditional retail. So the people who once inhabited those now empty stores aren’t sitting at home, but working elsewhere.
Second, he points out that the total e-commerce sector, including lower wage fulfillment centers, has an average wage of $21.13 per hour, which is 27 percent higher than the $16.65 that the average worker in traditional retail earns. So not only are more people working, they are taking home more money too.
If this seems unlikely, it helps to remember that many of the e-commerce jobs are digital jobs. So many of those retail clerks who used to man the checkout counter are now doing things like executing marketing campaigns. He also points out that the need to provide one-day delivery gives an advantage to domestic manufacturers, so we’re winning jobs there too.
Profiting From The “Dead Sea”
It’s not just those getting better jobs in e-commerce that are benefiting from the retail apocalypse. David Robertson, a Professor at MIT’s Sloan School of Management, points out that when an industry collapses, economics shift abruptly and that creates opportunities for other firms to come in with a new value proposition. He calls this a “Dead Sea Strategy.”
He gives the example of LEGO, the famous toy manufacturer. The company has operating LEGOLand amusement parks for years, which serve the dual purpose of connecting with customers and leveraging its brand to earn incremental revenues. Now, retail’s downfall has opened up new opportunities to build “Discovery Centers” in shopping malls.
A typical location is set up in an empty department store and features miniature versions of some the same attractions that can be found in its amusement parks. Parents can take their rambunctious kids on a rainy day and let them build, play or take a short class to teach them new skills. There is also, of course, a store selling product on the way out.
The strategy gives LEGO a strong negotiating position with mall owners who are in dire need to fill the space. With LEGO’s strong brand and favorable demographics, the Discovery Centers make for strong anchor tenants that drive traffic to other stores.
Driving Retail Experimentation and Innovation
Melissa Gonzalez, CEO of The Lionesque Group and author of The Pop Up Paradigm, sees similar opportunities opening up for more traditional retailers. The shifting economics of commercial real estate have opened up possibilities for them to be more innovative and better hone their business models.
“What we’re seeing is that landlords are much more flexible and open to experimentation,” she told me. Many will take short-term leases, give better terms, invest in architecture to facilitate pop-up opportunities and even, in some cases, forego up-front rent for a brand that they think can add luster to the space.”
For example, New Form Perspective is an upscale women’s fashion retailer that focuses on knits and sweaters. It has two permanent locations, one in New York and one in LA. With more flexible real estate conditions, it is able to more expand that number during the fall and holiday months when sales are more brisk, which allows it to almost double its revenues.
Greater flexibility also allows retailers to test out a location to see if the demographics, infrastructure and other factors work for their merchandising model, without taking on the risk of a long-term lease. Another emerging concept is group concept shops that allow a variety of brands to seamlessly integrate into “shoppable showrooms.”
These are, of course, still nascent trends, but they offer a glimpse into a better future for retail. In the new “dead sea” economics of retail, a wide variety of exciting new possibilities are likely to emerge.
We often see technology as giving rise to new industries and killing off others, yet few industries actually ever die. The rise of the automobile did not kill off railroads. Even today they thrive as transportation for freight. TV did not kill radio, but shifted programming toward music and listenership from the home to the car and office.
In much the same way, digital technology won’t kill retail. People still want to shop and have personal experiences in the real world. However value is shifting in the retail industry. The primary purpose of a physical location is no longer to drive transactions, but to service, build customer relationships and upsell.
The downturn in retail, along with decades of over-building, is also creating a perfect opportunity for other firms to execute a “Dead Sea” strategy. With so much empty space now available at far more favorable conditions, businesses have the opportunity to experiment and create new business models.
So it’s time to stop worrying and learn to love the retail apocalypse. Value never disappears; it just shifts to new opportunities.