The End of Retail As We Know It: Ideas for a Post Pandemic World
Part of a series of essays on where we’re headed, post pandemic.
Get ready to see a lot of empty storefronts.
As somebody who loves to shop, this makes me sad. The most interesting job I ever performed was as a purchasing director for a Caribbean island resort. Buying stuff from all over the world and getting it delivered never got boring.
I’m seeing estimates saying one in three retail locations will never reopen. When you consider that retail is the nation’s largest private-sector employer, supporting 52 million jobs overall, the gravity of the situation becomes obvious.
Retail sales generally are taking a huge hit with stay-at-home mandates. For real mom and pop kinds of stores, to the extent they are integrated into the community surrounding them and offer merchandise responding to more immediate needs, the future looks brighter.
Your favorite brand name stores for apparel, furniture, sporting goods, and curios, among others, are about to be hit with a double whammy of decreased demand (no shoppers) and increased overhead (interest on loans taken out to try to weather the crisis).
Into this void will step Etailers like Amazon. For purposes of this article, consider these brands as a replacement for the anchor stores at malls. Obviously it’s more complicated than that, but for today I’m speaking of people selling stuff directly to other people in storefronts.
The coronavirus pandemic will accelerate an already unfolding crisis in consumerism in the United States. Buying and selling goods and services for individuals represents, when all the ripple effects are considered, about 70% of the nation’s gross national product.
Decades of unsustainable growth and corporate plunder in the name of increased efficiency are coming to a head. The real estate deals, refinancing, and the need to put investors in front of consumers have left retail store operators with nowhere to turn.
Hedge fund-type investors have sold off assets and used the cash flow of larger retailers to run up debt unrelated to the core businesses. Now that cash isn’t coming, creditors are knocking at the door. It’s going to be a banner year for discount retailers dependent on surplus inventory.
Big names like Macy’s, and The Gap went to the financial well in a big way when the impact of the pandemic became obvious. Between March 11 and March 18, bank lending surged by $243 billion to a total of $4.1 trillion, as companies tapped the credit they were already entitled to receive from banks as part of prior agreements.
Companies running out of cash as sales collapse may not qualify for the financial assistance Congress just passed. The new loan program backed by the Federal Reserve is available only to corporations whose debt is judged safe by credit rating firms.
From the New York Times:
Much of corporate America, "including thousands of household brands that everyone has heard of, will have no ability to get credit," said Travis Norton, a lobbyist at Brownstein Hyatt Farber Schreck. The president of the National Retail Federation urged Trump administration officials last week to "exercise discretion to make these programs more widely available."
Even before the current crisis, Credit Suisse was predicting one in four malls would close by 2022. Another source says more than 15,000 stores will close this year, up from a record-setting 9,300 folding in 2019.
Although economists typically categorize consumer purchases into durable, non-durable and services, today’s post is focused on needs vs. wants. (Restaurant sales will be included in a future exposition of the leisure economy.)
The needs portion of the retail economy is likely to see further expansion and consolidation in the short term, as business for grocery, janitorial, and medical items has been brisk.
The long-term picture isn’t quite so good. As consumers tap out their remaining credit reserves and are forced to tighten their belts, the higher profit extras sold in these locations will fade in popularity.
It’s also true that, despite increased unemployment, the “temporary” wage increases seen by front line employees are not likely to retreat.
A year ago, we were arguing over whether these employees were worth $15 an hour. Now, just about every article I read in researching this topic says great service will be a key part of future marketing.
Those larger retailers that do survive will go beyond putting things on shelves and collecting payment at a register. Design and co-creation guided by personal experts will make for the kinds of compelling personal and physical experiences needed to succeed.
I believe the era of minimum wage clerks will give way to the simultaneous rise of robots at the low end and the Brand Ambassadors at the high end. It won’t be overnight, as store operators will seek to fall back into the old ways, old ways that aren’t coming back.
Mall managers, for those store clusters that do survive, will need to become curators, keeping their operations accessible to new brands and concepts, in a relentless effort to captivate consumers. Shorter term leases and pop ups are going to be the new normal. The alternative will be vacant storefronts and zombie malls.
Speaking of vacant, most ground-level retail spaces in high-rises will need to be repurposed, and business plans will need to be adjusted to account for the decrease in income required to fill those spaces.
When (not if) the current shutdown of the economy lasts more than 10 weeks, new patterns of behavior will become habits. I’m not sure of what those habits will be, but am certain that things aren’t going backwards. Those sellers of durable goods that can make the adjustment will be the survivors.
Automated stores and delivery services can be a big part of the future for retail, provided they can get past the disruption in the labor force and social safety net they cause.
Today’s serfs, i.e., the gig economy, will get more demanding in terms of payroll costs, just as they did after the Black Plague subsided in Europe. All that “freedom” and “flexibility” isn’t going to pay the bills come retirement or disability.
The early bright spot in all this retail turmoil has to be farmers markets; specifically the lack thereof. San Diego’s small farmers are selling as much as they can produce, thanks to cooperative delivery services and subscriptions for weekly market baskets.
In recent weeks I’ve seen local growers aggressively seeking funding for expansion. One such operator is talking about the need to expand their production by 800% to meet demand.
I miss the social aspect of seeing my neighbors shop at the weekly market. But as is true with just about everything, if and when those open air gatherings return, the rules of the game will have changed.
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Why I’m writing these essays.
It’s my opinion, and the view of many others, that things will never be the same again.
Let’s have a conversation about what that could mean from a glass half-full perspective.
I’m not interested in promoting ideas with no connection to reality (sorry, some form of capitalism will continue to exist, at least for a while); I’m looking for the seeds of change embedded or suggested by the needed focus on what is the greater good.
The coronavirus pandemic has had an economic and social impact on the U.S. ranking with the Revolutionary War, the Civil War, either World War, or the Great Depression. A path to what once passed as normalcy, despite what economic and political leaders would wish upon us, does not and should not exist.
Over the coming days (and probably weeks) I’ll be crafting essays building on the observable dismantling of the old normal with suggestions for what could be. The topics I’m researching include: retail, labor power, education, political campaigns, food, healthcare, and leisure.
I’m open to publishing outside essays and/or suggestions (drop me a line!) by readers on these and similar topics, so if the urge strikes, please reach out to me. Just remember, what I’m trying to do here is to posit a pragmatic approach to what could and should be, based on observable events.
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Part One: Ideas and Plans for a Humane Post Pandemic World
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Lead image via Pixabay