The Exaggeration of the ‘Retail Apocalypse’

The Exaggeration of the ‘Retail Apocalypse’

As the retail landscape shifts between physical stores and e-commerce, there has been widespread panic throughout the retail industry that suggests we are headed towards a ‘retail apocalypse.’ That phrase made headlines last year due to major store closures, painting a picture that the end of physical retail stores are closer than we think. While it is true, major retailers have closed down, consumers and retailers are given an exaggerated look at what is really happening in their industry.

 According to the latest retail report from consulting firm FGRT, major U.S retail chains announced the closures of 6,955 stores in 2017 and expect more retailers to follow suit in 2018.  The report found that there were 3 main reasons for the decline; 1) retailers who lost their innovation were the ones going bankrupt, 2) Malls were losing traffic footfall because it was too skewed towards only apparel and 3) the retail market was correcting itself.

While it is undeniable that there have been many retailers who filed for bankruptcy and closed their doors, a pattern emerged of how this could have happened to a once successful retail brand. It became evident that those who went bankrupt lost their innovation and were late adopters of the latest retail industry trends. If you look at major retailers that have closed down, think about how visually appealing they were and when you walked in the store, did it make you want to take your time in the store or have a quick browse and leave? And compare how differentiated the store is currently from when they first started. Consumers are evolving and have become more visual, focusing on branding and packaging. If you are not giving the consumers something to be attentive to when they walk in the store, you’re not giving them a reason to come back and you lose traffic footfall. The era of brands relying on product selling itself in a market where the threat of new entrants is high no longer exists.

Brands who have remained innovative on both sides of the retail spectrum like value-added stores such Costco, and the luxury segments like Sephora and Nordstrom,  understand that using both e-commerce and creating an appealing visual environment allows for increased user engagement translates into sales. Take Adidas and Nike for example, they highlight the benefits and experiences produced from consumer engagement, through POP displays and other marketing activities, rather than just using the product to sell itself.  This creates a branding experience for consumers and a messaging that is more impactful for potential customers because consumers are likely to remember the brand and interaction.

The decline was also in part by regional malls that are skewed only towards apparel. Consumers are looking for variety, which is why In 2017 major retailers opened 1,785 stores in off-mall centers like strip malls. Malls who were expanding their tenancies to grocery and “everyday goods” retailers and to mixed uses like leisure and entertainment, according to FGRT’s report, did not suffer from retail closures. Super-regional malls, which are considered leisure, as well as retail destinations, had solid occupancy rates during 2017 regardless of the retail bankruptcies.

One of the most interesting parts of the FGRT report is that most of the retail closures are due to the over expansion of retail space that occurred over the past two decades, rather than a sign of demise for the physical retail store landscape because of e-commerce. When you hear that GAP closed 70 stores and Walmart closed 63 stores, the media doesn’t mention that in the same year GAP and Walmart actually opened 90 stores each – more than they closed due to its location. In fact, GAP specifically plans to open an additional 270 stores by 2020 while grocery stores and dollar stores also expanding their physical footprints. As of year-to-date 2018, the number of US store closure announcements stands at 1,582 and the number of store openings is 1,278.

Take a look at the statistics shared by FGRT and compare the store closings and openings and you will see that retail apocalypse is not here, and the retail industry is finally correcting itself.