Trend Watch: Traditional Retail is Dying
The recent news of Best Buy’s (NYSE: BBY) store closings is just a continuation of the travails of bricks and mortar retail.
Walk the streets of any metropolitan downtown and you can’t help but notice the increasing vacancies. Both strip and traditional malls have difficulty maintaining tenants. As online shopping explodes, the negative impact on traditional retail is unavoidable.
The supply of retail stores is outstripping the demand.
A Massive Shift in Consumer Behavior is Underway
Ever watch an old Western television show? There’s the “town” with the general store, saloon, hotel, and a few more commercial establishments. For those special needs, the shoppers order extra consumer goods by mail. This scenario was a reality in the 1800's.
Flash forward 150 years to the advent of the suburban mall. With urban populations moving to the suburbs in the middle of the last century, shopping malls began popping up everywhere. After all, once the population masses migrated to the suburbs, they wanted somewhere close by to buy their clothes, groceries, and household goods.
Thus began the demise of the downtown shopping destinations and the advent of suburban malls. After several decades of “the mall is king” economics, the shopping mall is joining the ranks of the declining urban districts.
As our comfort with the internet grows, along with both parents working outside the home, the convenience of shopping on line is gaining ground. In fact, so much ground that it is squeezing out traditional retail.
How Are the Traditional Retailers Coping?
The writing is on the wall, traditional retail is on a downward trajectory being replaced by low overhead online merchants. Wal-Mart’s (NYSE: WMT) attacks on the online retailer are funded through @Walmartlabs where the company is feverishly attempting to grow its internet presence. Add their recent acquisitions of Kismix, a social-media firm and iPhone app creator Small Society, and the behemoth is running scared. If Wal-Mart is worried about competition from the online community, is there any hope left for the smaller retailers?
Best Buy is coping by decreasing their bricks and mortar stores, as the recent push into various retail styles hasn’t yielded the growth the company was hoping for. Best Buy was expected to be the greatest beneficiary of Circuit City’s collapse. That expectation didn’t work out too well as shopping online for commodity electronics continues to explode.
It’s been several years since the Sears (NASDAQ: SHLD) / Kmart merger and Lampert, the architect of that business integration, was named the worst CEO in 2007. Sears Holdings isn’t holding up too well at all today. J.C. Penney (NYSE: JCP) is trying a competitive tact of everyday low pricing and has been touted by Forbes as the “most interesting retail story of 2012”. Time will tell whether the Forbes prediction comes to pass.
Although I hold shares in Best Buy, Wal-Mart , and Target (NYSE: TGT), I would not recommend investing in the traditional retail sector. I believe that during the next several decades, retail will be unrecognizable. I cannot profess to know the exact nature of the next phase in the retail shopping story, but it is certain that invigorated shopping malls and expanding urban retail is unlikely.
If I were to wager a guess, I suspect we will see fewer retail establishments and a continuation of consolidation in the industry.
Barring any unforeseen online tragedies, it doesn’t look like the growth of internet shopping is slowing down any time soon.
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