The Great U.S. Retail Apocalypse of 2017

THE GREAT U.S. RETAIL APOCALYPSE OF 2017

February 2018 | By: Lawrence J. Ring, Chancellor Professor and EMBA Alumni Professor, the Raymond A. Mason School of Business, The College of William and Mary

Estimated reading time: Estimated reading time: 5.5 minutes

Key Takeaways

  1. Many department stores and apparel stores are losing sales, closing stores, and going bankrupt. The market value in this category declined 53% between 2006 and 2016.
  2. Meanwhile, discounters, off-pricers, dollars stores, and fast fashion chains are doing well. The market value in these categories rose 122% between 2006 and 2016.
  3. Dominant retailers including Amazon and Walmart are executing a “bricks and clicks” strategy that promises to influence retail trends in the coming years.

A very popular narrative out there says we are witnessing the death of retail, which makes for great click bait. The retail apocalypse has been featured in stories in The Wall Street JournalUSA TodayFortune magazine, and The Atlantic, among others. Stores are closing and retailers are declaring bankruptcy … and Amazon is the villain taking over the retail world.

Bankruptcies and Store Closings

U.S. retail bankruptcies are at a record level, 22 by mid-summer of 2017. Bankrupt retailers are closing more than 2,500 stores. The bankrupted retailers include well-known names such as Sports Authority, The Limited, Payless Shoe Source, Radio Shack, Wet Seal, Vanity, hhGregg, Gordman’s, Rue21, Gander Mountain, Gymboree, Toys R Us, and others.

Meanwhile, nonbankrupt U.S. retail chains also are closing at a frightening rate. JC Penney, Sears, Macy’s, Chico’s, and GameStop have closed more than 100 stores in 2017, and A&F, Staples, Michael Kors, and others are close behind.

Market Value Declines For Some Retail Chain Stores
Store 2006 Value ($B) 2016 Value ($B) % Change
Total $188.8 $89.5 -53%
Sears $27.8 $1.1 -96%
JCPenney $18.1 $2.6 -86%
Nordstrom $12.4 $8.3 -33%
Kohl’s $24.2 $8.8 -64%
Macy’s $24.2 $11.0 -55%
Best Buy $28.4 $13.2 -54%
Target $51.3 $40.6 -21%
Dillard’s $2.4 $1.8 -25%

Source: http://www.visualcapitalist.com/extraordinary-size-amazon-one-chart/

The Great U.S. Retail Apocalypse of 2017

Why did this happen? Blame Amazon. Americans are buying more online. Amazon’s market cap in 2006 was $17.5 billion, and grew in 2016 to $356 billion. Amazon had retail sales in 2006 of $10.7 billion, and grew in 2016 to $95 billion. Eight department-type stores had retail sales in 2006 of $222 billion, and declined in 2016 to $214 billion. Eight department-type stores had a collective market cap in 2006 of $189 billion, and by 2016, that number had declined to $86 billion.

Shaopping center chart

Stagnant wages and rising costs have squeezed consumer spending on fun stuff like apparel. The recession permanently hurt logo-driven brands such as A&F and Polo Ralph Lauren. Customers became value-driven bargain hunters and shopped more at discounters, off-pricers, fast fashion stores, warehouse clubs, and dollar stores (and not at Macy’s or Sears).Annual retail sales graph

What Is Really Going On? Retail Is Not Dead or Even Dying

If you look beyond department stores and clothing chains, many retail sectors are actually doing very well. The number of new stores being built actually exceeds the number being closed. Retail customer spending  continues to grow steadily.




The Great U.S. Retail Apocalypse of 2017, Market Value Grows

What’s Really Going on? Retail is not dead or even dying

Some retail chain market values are growing fast...

Store 2006 Value ($B) 2016 Value ($B) % Change
Total $280.4 $622.9 +122%
Costco $19.5 $68.8 +252%
Ulta Beauty $1.45 $16.9 +1065%
TJX Companies $12.4 $48.7 +293%
Dollar Tree $3.1 $18.24 +488%
Home Depot $60.6 $164.4 +171%
CVS Health $26.6 $80.6 +203%
Ross Stores $3.9 $25.4 +551%
Walmart $152.9 $199.9 +31%

More Stores, Not Fewer

The number of new stores being opened actually exceeds the number being closed. Retailers are opening 4,080 more stores in 2017 than they are closing, and they plan to open more than 5,500 in 2018. Mass-merchandisers, including off-pricers and value chains, are the fastest-growing retail segment (+1,905 stores), followed by convenience stores (+1,700 stores), and grocery retailers (+674 stores).

Retail Spend Is Growing

Retail spending continues to grow steadily. GDP has been growing for eight straight years. Gas prices are low. Unemployment is under 5 percent. The last 18 months have been quietly excellent years for wage growth, particularly for middle- and lower-income Americans.

The Great U.S. Retail Apocalypse of 2017

Most retailers operate their stores within 5-10% of their break-even point. A 10 percent drop in sales will often move a profitable store to break even or a net loss. Internet retailing/ecommerce now averages 10 percent across all sectors in the U.S. and 20 percent for apparel and consumer electronics.

Internet Retailing

U.S. internet retail sales were $373 billion in 2016, which amounted to 9 percent of Total U.S. Retail Sales. Internet retail sales are forecast to be $523 billion in 2020 (11% of U.S. retail sales). They will grow at a 9.32 percent PA compound growth rate through 2020. In 2016, 45 percent of online sales were by mobile phones. Western Europe had online sales of €224 billion in 2016, and are forecast at €378 billion in 2021, an 11 percent PA compound growth rate. In 2016, more than 200 million people bought something online in the U.S. The number of retailers selling online is continuing to grow. And, 55 percent (and growing) of total retail sales in 2016 were web-influenced.

Sales Growth and Share for Selected Product Categories, 2016
Product Category Growth Share
Computer/electronics 12.5% 22.2%
Apparel and Accessories 12.9% 20.2%
Books, Music, Video 13.6% 9.6%
Housewares/Home Furnishings 11.8% 7.4%
Health and Personal Care 11.6% 4.4%
Office Supplies 10.4% 2.9%
Toys and Hobby 12.2% 3.7%
Food and Beverage 10.5% 2.4%

The Great U.S. Retail Apocalypse of 2017

Many department stores and apparel stores are losing sales, closing stores, and going bankrupt. They have been disrupted. Discounters, Off-Pricers, Dollar Stores, and Fast Fashion Chains are doing well. Ecommerce is thriving and mobile phone shopping is growing even faster, but bricks and mortar retailing is not dead or even dying.

Wal-Mart’s New Direction

While Amazon bought Whole Foods for $13.7BWalmart unveiled a strategy that signals shifts in the industry. The company seemed to signal a landmark shift for the overall retail industry when it said in October that it will sharply scale back store openings and instead focus on ecommerce.

eMarketer forecasts that nonecommerce retail sales will increase 2.8 percent this year, better than last year’s gain—a surprising change considering the widely heralded retail apocalypse headlines in the past months. Ecommerce, on the other hand, is expected to jump 15.8 percent this year, also outstripping 2016’s gain.

Walmart CEO Doug McMillon told a gathering of investors at its Bentonville, Arkansas, headquarters that the retailer will open fewer than 25 stores in the coming year, stating that Walmart is “making a deliberate choice that we are going to win in ecommerce.”

Omnichannel, Putting Clicks Together with Bricks!

An overwhelming 89 percent of consumers stated that it is important for retailers to let them shop for products in the most convenient manner for them, no matter which sales channel they choose. We are witnessing a significant shift in shopping patterns away from bricks and mortar to online mobile shopping. However, 85 percent of consumerswould still prefer to shop at a brick and mortar store to an online store. Bricks and mortar stores will remain thedominant revenue-generating channel for the foreseeable future.

Where To From Here?

Amazon is investing in bricks and mortar stores (Whole Foods Market, bookstores, pop-ups), and Walmart is investing in clicks. The two most valuable retailers in the world are saying bricks and clicks is the way to go.