Tag Archives: department stores

The Good Old Days? White House Fights the Free Market

The current occupant of the Oval Office would have me believe he’s The Champion of Small Business In The Face Of The Evil Empire of….Amazon.  Spare me.  (And, NO, the USPS isn’t going broke because of the shipping contract the company has with Amazon. It has much more to do with the Republican supported and enacted restrictions on its pension plan, which require inordinate prepayments into the plan. [IG Report]) So, returning to the topic at hand, let’s start with the proposition that nostalgia isn’t conducive to successful retail marketing.

A Little History 

Extrapolated into the realm of the ridiculous, there was a time before Macy’s and Bloomingdales (1858, 1861) when shoppers roamed among small retailers along commercial corridors.  Add the installations of elevators and escalators and the retailers could further “departmentalize” their offerings.  Surely there were objections from smaller retailers at the time, and there were probably others who decried the Memphis Piggly-Wiggly grocery store’s 1916 decision to let customers get their own items from the shelves rather than have a clerk do the accumulation.  However, it’s unimaginable to give any credence to the notion that innovations in retailing are necessarily nefarious.

The department stores faced competition beginning in 1872 from Aaron Montgomery Ward whose catalog advertised shipping via Express rail services, and from Richard Sears. Their catalog sales were boosted by the decision in 1913 to have the Post Office deliver domestic packages. [AtlasObs]  Again,  to assert that companies like Amazon, which depend on Internet ordering systems are somehow essentially different from the innovations adopted by Ward and Sears is risible.  What we might be hearing from the White House is the lament for brick and mortar retailers who rent property?

Another Change in Retail Habits

We’ve moved from shopping along Main Street, to shopping from catalogs, to shopping from online catalogs.  And, yes, Amazon is now a big presence in the retail system:

“The simplest explanation for the demise of brick-and-mortar shops is that Amazon is eating retail. Between 2010 and last year, Amazon’s sales in North America quintupled from $16 billion to $80 billion. Sears’ revenue last year was about $22 billion, so you could say Amazon has grown by three Sears in six years. Even more remarkable, according to several reports, half of all U.S. households are now Amazon Prime subscribers.” [Atlantic]

However, this is an over-simplification which goes nowhere toward explaining how a chain store founded in 1962 in Arkansas has grown into a 2,000,000+ employer, or why Target seems to be holding its own in the Big Box Store category.  Notably, both Walmart and Target have an Internet operation.

We can lament the demise of the brick and mortar retailers, but as the Atlantic article points out, part of the hard, sad, truth is that we simply built too many of them.

“The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure of consumerist plentitude—shopping center “gross leasable area”—the U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany. So it’s no surprise that the Great Recession provided such a devastating blow: Mall visits declined 50 percent between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they’ve kept falling every year since.” [Atlantic]

Toss in a measure of stagnating wages and decreased levels of discretionary spending and it’s little wonder the mall traffic is declining.

“After adjusting for inflation, wages are only 10 percent higher in 2017 than they were in 1973, with annual real wage growth just below 0.2 percent.[1] The U.S. economy has experienced long-term real wage stagnation and a persistent lack of economic progress for many workers.” [Brookings]

Those “many workers” are deciding the Big Box, and online bargain offers, are preferable to mall browsing.   We overbuilt malls, organized them around “anchors” which are looking at declining sales from Big Box, discounters, and online shopping, and thus shouldn’t be surprised when the free market works.

That the current president is upset with the reportage of the Washington Post, owned by the same man who founded Amazon, is no surprise either.  However, that doesn’t fully explain his antagonism which may also be a function of being a real estate developer, and a real estate developer who seems to be freighted with altogether too much nostalgia for those “Good Old Days” when we’d take the transit or pile into the family wagon to shop on site.   There have been major innovations in retailing since the first butcher opened his first shop and accepted payment in cowrie shells.

The Nevada Situation

Obviously, the largest factor in the Nevada is “Accommodations and Food Service,” read: Casinos and restaurants; but the second largest employment category is good old fashioned retailing.  As of the SBA’s 2017 report, there are 140,879 people employed by retailers; of this figure 39,947  are employed by small businesses, or about 28%. [SBA pdf]

There’s reason for cautious optimism in southern Nevada with regard to wages and spending, but …

“The Las Vegas MSA’s 12MMA of average weekly earnings (not inflation-adjusted) went up by another $3 in November. This was the 4th month in a row nominal average weekly earnings rose by $3, continuing a steady streak of growth started just over 3 years ago in September 2014. On a YOY basis, the 12MMA was up $37 (5.0%) from November 2016.

When considered on an inflation-adjusted, YOY basis, earnings rose by 2.8% in November 2017 compared to November 2016, reaching $669 (in 2007 dollars). This was an increase of $1 from October. Las Vegas’ average weekly real wage is now $82 (10.9%) below the most recent inflation-adjusted peak of $751 that occurred over 10 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas remains much closer to the trough than the peak.” [StatPak]

If we’re looking for significantly increased demand to boost the southern Nevada retail sector further, something is going to have to happen to those average weekly wages.  The picture for northern Nevada is slightly more optimistic:

“While Washoe County’s economy continues to benefit from rising taxable retail sales, the YOY growth rate has fallen considerably from a year ago. In November 2017, the rate of growth was 6.2% YOY, or 3.2 points lower than the year period ending in November 2016. However, when compared to the month prior, it is down 0.2 points. Taxable retail sales reached $686.8 million in November, having already surpassed, in March 2016, the previous peak on a nominal basis (not inflation-adjusted). As the chart shows, Washoe’s taxable sales growth is very near the state average at just 0.4 points below.

Success in business attraction and retention is driving the region’s economy and is the primary cause of growth in taxable retail sales, though increasing visitation has also contributed.”  [Statpak]

One other factor to be considered before pronouncing Amazon as the harbinger of demise for retail malls is good old fashioned demographics. Neighborhoods change, people move, and the “centrality” of a mall constructed in the late 1960’s or 1970’s may not reflect the residential and traffic patterns 40-50 years later.

And yes, I remember shopping for vinyl records in Park Lane Mall ages ago… when I was still playing vinyl records… before I shifted to CDs … before I downloaded … anyone who expects (or wants) retail endeavors to remain constant in the tides of time will have about as much success as King Canute attempting to command the liquid form of tides.

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Shopping Season: Ghosts of Christmas Past and Yet To Come

Retailers were pleased with 2016’s holiday shoppers and their willingness to open their wallets.  However, interspersed with the congratulatory messages about sales numbers there were some words of warning:

These are also the worst of times for retail. National chains including Macy’sSearsJ.C. Penney’sKohl’s and Barnes & Noble all suffered absolutely brutal holiday seasons, calling into question what — if anything — they can do to right the ship and compete more effectively in an increasingly digital world.  [RD Jan 2017]

By April 10, 2017 the sounds were still ominous:

There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare.  [Atlantic]

Part of the explanation is obvious — for example mobile shopping increased from 2% of spending to 20% from 2010 to 2016.  The increases in e-commerce is also readily apparent.  The enthusiasm of developers for shopping malls caused massive “over-building” and this fad has collapsed in a heap.  It isn’t more explicitly stated than this:

The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure of consumerist plentitude—shopping center “gross leasable area”—the U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany. So it’s no surprise that the Great Recession provided such a devastating blow: Mall visits declined 50 percent between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they’ve kept falling every year since.   [Atlantic]

It’s no mystery why mall visits would decline in the wake of the Housing Bubble/Wall Street Casino collapse, what we should be asking is why the mall visits have kept falling every year since.   And we’re back to the convenience of e-commerce, mobile shopping, and overbuilding argument.  There’s another element involved, and it may be hidden in plain sight, i.e. in the comments from Cowen’s retail recommendations. (pdf)

At the end of the first quarter of 2017 Cowen’s was embellishing its five year store analysis report segment with a rain shower graphic, warning that retailers like JC Penney, and Macy’s might need to close some 20-30% of their stores,  and Kohl’s might look to decrease its operations by about 10%.  There was another rain cloud for malls, associated with the prediction saying 20% of malls would need to be transformed from current operations or closed outright.   So, what received the sunshine graphics?  “Speed, service, and branding,” along with “deep value.”   What’s “deep value?”  Read Cheap.

Outside one questionable thesis stating that the middle class is shrinking because its membership is moving up into upper income brackets, most analysis describes the declines in sectors of the retail market as it relates to the middle income squeeze.

“It’s hard not to see the invisible hand of income inequality reflected in the fortunes of the retail sector. As the gulf between the rich and poor grows, and the middle class shrinks, retailers serving the former are seeing big growth, while those aiming with a middle-class clientele are struggling to bounce back.

The numbers don’t lie: wealth distribution is more uneven than ever. And the middle class is getting smaller with each passing year: According to a study by Pew Research, “From 2000 to 2014 the share of adults living in middle-income households fell in 203 of the 229 U.S. metropolitan areas” examined in the study.  And that bodes poorly for the economy as a whole, as the report suggests that “a struggling middle class could be holding back the potential for future economic growth.” [Balance]

About whom are we speaking?

While discounters and high-end luxury have thrived, department stores serving a more middle-class customer base have struggled. Macy’s (M), Kohl’s (KSS) and Nordstrom (JWN) and single-brand retailers like The Gap (GPS) had terrible quarters and struggled with declining foot traffic and inventory issues.  [Balance] (Aug 2016)

Nordstrum’s as of last February? “Nordstrom continued to see greater difficulties in its premium namesake brand. The Nordstrom brand saw comparable sales fall 2.7%, leading to a 1.1% drop in segment revenue. Strength in women’s apparel and beauty weren’t enough to pull the overall company’s number higher, and the East was the best region geographically. However, the discount Nordstrom Rack concept kept doing well. Revenue was up double-digit percentages for the quarter, and comparable-store sales were up 4.3%.”  [Fool]

The latest news from Macy’s: “Macy’s is looking to use the crucial holiday shopping season as a springboard to reverse 11 straight quarters of same-store sales contraction. A decline in foot traffic at malls and the rise of e-commerce has shaken investor confidence in department stores and led Gennette to slash costs, close stores and reduce inventory. Macy’s is also seeking monetize some of its real estate holdings.”

What do these retail giants have in common?  They both catered to middle and upper middle income shoppers.   Thus no one should be surprised to find job numbers moving up in general while retailers weren’t sharing the optimism. [Dive]  Even Macy’s recent announcement of seasonal hiring was tempered by saying the jobs were temporary.

The Republican offerings on this subject?  Enact a tax scheme which overwhelmingly benefits corporations and upper income individuals.   This is a perfect way to exacerbate the current retail situation wherein the elite stores are doing well, and Dollar General is expanding for everyone else.

Enact a tax scheme which is “territorial” the antithesis of keeping jobs in the United States:  “ It could give a permanent preference to foreign income and lead companies to shift more profits to tax havens knowing that they could permanently avoid virtually all taxation on such profits.”  Again, a permanent tax cut for corporations while raising taxation revenue from everyone else who isn’t a millionaire or billionaire.

So, retail employees, who earn an average of $22,900 per year or about $11.00 per hour, and a third of whom work part time, will see the Great Squeeze continue.   It remains to be seen if those retailers who target middle income earners (Sears, Nordstrum, JCP) will be able to stave off the onslaught of online, e-commerce, deep discount shopping.  And, the GOP will continue to believe in the Growth Fairy coming to the rescue of their highly specious arguments for Trickle Down Hoax economics.   A prediction for the 4th quarter of 2017:  Elves who spent the holiday season cutting prices may see short term gains with yet more indications we’re looking at some more long term losses for middle income America.  In the competition between the Growth Fairy and the Discount Elf — bet on the Elf.

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