The Apocalypse That Isn’t

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The Apocalypse That Isn’t

By Marianne Wilson - 10/11/2019

Sometimes perception gets in the way of reality. Such is the case, I think, with the death of physical retail.

There is seemingly no end to the ongoing stream of reports trumpeting the death of brick-and-mortar. Headline after headline calls out that the “retail apocalypse” is upon us, reaching a fever pitch every time a retail chain files for bankruptcy or downsizes. It’s an intriguing narrative, one that would have you believe that physical retail is going the way of dinosaurs. The fact that it’s not true seems to be beside the point. 

Yes, online is growing at a faster rate than offline — but how could it not given the maturity of brick and mortar? And yes, some retailers have closed up shop, undone by debt burdens, overexpansion, outdated business models, evolving consumer preferences or a failure of imagination (or any combination thereof). More are likely to follow. But to judge the health of an industry as huge as retail based on its weakest players makes no sense to me. 

Some recent data serves as an inconvenient truth to the ongoing retail apocalypse scenario. Most revealing is the new study from consulting firm IHL Group, “Retail Renaissance — True Story of Store Openings/Closings,” which found that, on average, more than five (5.2) retail chains are opening stores for every retailer closing stores in 2019. 

Supermarkets, drug stores, convenience stores and mass merchants/warehouse clubs represent the fastest-growing sector in terms of new store growth: For each company closing stores, 9.5 are opening new locations. The biggest growth is in convenience stores and dollar or extreme-value players such as Dollar General and Five Below. Fast-food also continues to expand at a torrid pace and is the fastest-growing category in the restaurant sector. 

“U.S. retail has increased $565 billion in sales since January of 2017, fed not just by online sales growth but net store sales growth,” said Lee Holman, VP of research for IHL Group. “Clearly there is significant pressure in apparel and department stores. However, in every single retail segment there are more chains that are expanding their number of stores than closing stores.”

What’s more, the closings are not being driven by a limited group of retailers, but the overall market, IHL found. Twenty companies — led by Payless Shoe Source with a whopping 2,354 locations, Gymboree, Charlotte Russe and Dressbarn among others — represent 75% of all store closings. Sixty-four percent of retailers are increasing the number of stores in 2019, 12% are decreasing and 24% report no change in store counts. 

Physical retail is not poised for extinction.

Sales Growth: The promoters of the “store is dead” narrative seem to forget that the vast majority of sales still occur in-store. Total retail sales were $3.63 trillion in 2018, according to the U.S. Department of Commerce. Of that, consumers spent $513.61 billion online. 

The National Retail Federation forecast that retail sales (excluding automobile dealers, gasoline stations and restaurants) during 2019 will increase between 3.8% and 4.4% to between $3.82 trillion and $3.84 trillion. Online sales, based on expected growth of 10% to 12%, would fall between $751.1 billion and $764.8 billion (included in the overall total.). Looking further ahead, IHL expects 81% of all retail sales will still go through stores by 2021. 

Finally, consider Gen Z. According to a new survey by A.T. Kearney, consumers ages 14 to 24 overwhelmingly prefer to do their shopping in stores. Eighty-one percent of Gen Z respondents said they prefer to purchase in stores, and 73% said they like to discover new products in stores. 

The bottom line is that physical retail is not poised for extinction. Simply put: Stores still matter.

“Without question there are many challenges to [store] retailers today, but overall that state of the industry is strong,” the IHL report stated.

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