"Retail Apocalypse", cutting costs without implementing changes is a sure way to lose

In brief
"Retail Apocalypse": a consequence of structural issues in the US market and the transition to post-channel. Cutting costs is not enough without innovation

The term “Retail Apocalypse” now even has its own Wikipedia page. Which, albeit emotionally even for those who are not responsible, makes the USA’s deep Retail crisis official. But beyond the sad list of present and future victims of the apocalypse, the most striking thing is the strong rooted common opinion that digital commerce is the only cause of the commonly understood difficulties Retail is facing and that, above all, it is a sector in itself; different and completely unconventional compared to traditional sales. That is not the case. For us, the current apocalypse is nothing but the deep restructuring of the industry, induced by structural reasons and made necessary by the historic transition to post-channel. Brand fortune (which is not lacking) and misfortune are inextricably linked to the transformation of now obsolete distribution models and the reduction in supply density. As well as overcoming the terrible misunderstanding that cutting costs is enough to get everything back in order. The Apocalypse, a few figures

More than 100 closures announced by Macy’s, a true institution of the American “way of life”, 68 of which have taken place since the beginning of 2017. JC Penney has reduced its network by 14%, abandoning 138 stores. Sears, which was the US’s largest retailer from 1925 to 1989, is closing down 250 retail outlets in its network (Kmart and Sears), leaving only 50% of the value of its operation on the ground. RadioShack is reduced to a network of 70 direct stores and a few hundred indirect stores after reaching a quota of 6,000. Here, the apocalypse is not just a figure of speech.

In the fashion sector Aéropostale, Sports Authority and American Apparel have gone under. Abercrombie & Fitch is looking for partners to avoid the worst, and the trials and tribulations Ralph Lauren and Michael Kors are well known and official. Gymboree will close 450 outlets out of 1,281. There will be mass redundancies at Hudson Bay Company and Ascena, with the shutters lowering on 650 stores. It will soon be the end for Claire and Nine West Holdings. Payless ShoeSource files for Chapter 11 bankruptcy, along with Family Christian and Wet Seal. These are just a few examples. Forecasts

This is for 2016. In the first few months of 2017, bankruptcy procedures for CNN grew by 31% yoy and forecasts by BankruptcyData.com are apocalyptic. According to Credit Suisse, nearly 9,000 stores are expected to close by the end of year (the equivalent of a commercial area of ​​13.6 million sqm). For Fitch rating agency, the rate of default rose to 2.9% in June in the Retail sector, up from 1.8% in the previous year, and by the end of 2017 this is predicted to rise to 9%.

American distribution Is it all the fault of digital commerce? No, Retail as a whole has also benefited from it (sales up 8.4% in the period and growth in employment in distribution warehouses). Two decisive factors: the state of the country’s distribution, and the difficulties linked to the transition from the exclusively “brick & mortar” model to post-channel, which has been poorly handled and is far from complete. Several cases of bankruptcy and escape from retailer’s stocks on Wall Street have been obtained. According to Business Insider analysts, the origins of the apocalypse date back to a few years ago, and the “digital demon” of the most recent period has only aggravated its gravity. In the 2010-2013 period, malls suffered a true apocalypse: 50% less attendance in a market where distribution density is today about 2.18 sqm per person, 40% more than Canada, five times the figure in England and ten times that of Germany. This extensive and long-lasting demise has induced the movement of opinion and business, linked to the concept of “urban renaissance”. The victim and the killer “The physical store is dead, Amazon has killed it.” It is simply not true! If it is not enough that Amazon has moved into physical stores (and they are not the only ones), and Whole Foods’s recent acquisition is a brilliant demonstration of this, most consumers continue to prefer the in store shopping experience. According to a TimeTrade survey, if a required product is available both online and in a nearby store, then 75% of people interviewed prefer to buy it in the shop. Accenture’s analysis of target purchase par excellence, shows that the percentage is even higher (77%) for people born after 1980. There is no going back Quality to meet expectations, fast purchase and payment times, customised service and, when necessary, the price. This is what the buyer is asking for, which is nothing new. Post-channel is characterised, however, by the overhaul of the traditional purchasing process, enabling many consumers to begin the process of purchasing on one channel and then conclude it on another (the classic hybridisation case is click and collect). Digitised and omni-channel shops are able to effectively integrate their online and offline offering: the road has been paved and there is no going back. The tortoise becomes the hare From 2014 to today, Walmart – the world’s biggest retailer ($365 billion in sales, more than 5,000 stores, and over two million employees) – has provided extraordinary evidence of aptitude to change and speed of completion. In the program “to reimagine retail again”, there is no typical process that cannot be improved and made compatible with new purchasing behaviours and what is needed for the new customer relationship. This was the case for the “smart” shopping trolley project. Then came the acquisition of Jet.com to restructure their online shopping service. And finally, the 24-hour self-service kiosk to finalise online shopping deliveries. The reorganisation of their format is ongoing, and also aims to integrate mobile technology to serve “food deserts”. Not to mention their collaboration with JD.com, China’s second largest digital commerce company, for the delivery of products purchased in over 400 local stores. Today Walmart grows constantly, but for many competitors discontinuity is usual and, in many cases, the repetition of bad or disastrous performances is regular.

The Apocalypse, how can we get out of it?

Innovate or perish. That has been the key to success at retail since before Sam Walton.

Kai Clarke, CEO, American Retail Consultants.