Store Closings are Only Part of a bigger – and More Positive – Story for the Retail Industry, Execs Insist

Article originally posted on AZ Central on April 15, 2019

The Walmart Neighborhood Market concept was first launched in 1998, and the location at Chandler Boulevard and Kyrene Road opened in August 2013. It is closing April 19.

Retail-industry executives have more than a few chips on their shoulders. They’re tired of being portrayed as a business in decline, even in a death spiral, despite a continuing trend that could see more big-name chains closing brick-and-mortar locations for years to come.

No matter. All those headline-grabbing consolidation announcements portray only part of the picture, they say, like an iceberg with a mass that’s mostly below the water line.

Overall retail-store sales are growing slightly faster than the economy, and most big companies remain in business, despite bankruptcies in recent years of notable chains including Sears, Mattress Firm, David’s Bridal and Toys “R” Us.

Sales at brick-and-mortar locations clearly aren’t increasing as fast as internet sales. But they’re still growing at a healthy clip and doing so on a much higher dollar base, from which big percentage gains are tougher to achieve.

“The large majority of everything you buy is still bought in a physical store,” said Terry Lundgren, the retired chairman and CEO of Macy’s at an industry conference on April 4 in Tucson hosted by the University of Arizona.

Momentum from 2018

Helped by online orders, retailing actually has been expanding faster than the economy, with total sales up 4.6 percent in 2018 compared with a Gross Domestic Product gain of 2.9 percent, noted Matthew Shay, president of and CEO of the National Retail Federation, speaking at the Tucson conference.

That’s based on preliminary figures from the Census Bureau; final numbers were delayed by the government shutdown.

Online sales have been robust, but even sales at physical stores appear to have grown a respectable 3 to 4 percent or so in 2018. Jack Kleinhenz, chief economist for the National Retail Federation, said it’s difficult to pinpoint exactly how well brick-and-mortar locations fared relative to online retailers based on how the numbers are collected.

For example, if a consumer bought something online then returned it to a store, the return could be counted against sales at the physical location, he said.

The reverse, “buy online and pick up in stores,” also is growing quickly, especially in the grocery industry. There’s even an acronym for it: BOPUS.

The National Retail Federation forecasts total sales will rise between 3.8 percent and 4.4 percent in 2019.

Shay said that the initial economic jolt from income-tax reform has ebbed, which partly explains the slightly lower forecast for 2019. However, consumers remain confident and most Americans who want to work are employed — two key favorable factors.

Too much floor space in the U.S.

Still, Lundgren conceded that there are too many stores given Americans’ shifting buying patterns and demographic changes. For example, he cited a shift toward purchases of items and services such as cellphones, streaming video and travel experiences over suits and ties.

“We have overbuilt the physical space,” Lundgren said. He said there’s 23.5 square feet of retail space per person in the U.S. That’s double the comparable figure in Australia, five times the amount in Britain, six times the ratio in China and France, and 10 times the comparable retail footprint in Germany.

The U.S. should have more retail space per capita than in most other nations because Americans consume more — but not five to 10 times more, Lundgren said.

“The square footage devoted to retail needs to shrink, and that’s happening,” he said.

“We’re going to get through this period (of imbalance)” and it will create the foundation for retailers to thrive, Lundgren said. At any rate, he complained, what’s often left out of news coverage are references to all the stores that remain open.

Converging toward the middle

Brick-and-mortar retailing isn’t dying so much as changing, retail executives contend.

Companies with lots of physical locations now are using them more in ways that complement their online channels. Shoppers still like to touch and try on products, and they often flock to stores and malls to socialize and discover new things — and to pick up or exchange goods bought online.

There’s a reason the term “retail therapy” was coined to describe an uplifting experience.

Shay used a football-field analogy to illustrate the transformation. Years ago, he said,  brick-and-mortar retailers were playing near one end zone, while online retailers were at the other. Now, most of the activity is in the middle of the field.

“We think stores have a long life,” agreed Doug McMillon, president and CEO of Walmart and another speaker at the Tucson conference, hosted by the university’s College of Agriculture and Life Sciences. “Stores will become hybrids, with dual purposes.”

For example, McMillon discussed Walmart’s strategy to focus on grocery deliveries from its stores, which are located within 10 miles of 90 percent of the American population.

The companies that have shuttered stores tend to be those that lack desirable products, don’t offer fun or interesting shopping experiences and haven’t continued to innovate and develop, said Sarah Quinlan, a retail strategist at QAM Ltd.

They also tend to be concentrated in places with stagnant population growth, she said, noting that Arizona ranks among the best places for attracting newcomers from other states.

Tariff dangers: ‘Self-inflicted’ wounds

What seems to keep retail-industry executives up at night isn’t so much the shift to more online sales but rather the potential for “self-inflicted” policy wounds, Shay said.

Above all, he cited new tariffs on products like lumber, steel and aluminum and the prospect of trade wars if current tensions can’t be ironed out with China, Canada, Mexico and other nations.

Tariffs increase product costs and are a type of tax on consumers, he said. Shay also cited possible border closings and government shutdowns as two other worrisome threats.

During the Tucson conference, President Trump posted on Twitter that he was backing off from an immediate threat to close the border with Mexico — a development that elicited applause from those in attendance. However, Trump raised the possibility of price-inflating tariffs on vehicles made in Mexico.

“What worries retailers isn’t too many stores or distracted consumers,” said Quinlan. “It’s tariffs and trade disruptions.”

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