Holiday 2019 Wasn’t So Jolly For Brick-and-Mortar Retailers and Challenges Will Continue
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Early results are in and they show that holiday retail sales increased 3.4% (excluding automobiles), according to Mastercard’s post-Christmas holiday report for sales November 1 through December 24.
But before we hoop and holler about how strong retail is, most of the growth, as well as that through the rest of this year, has been credited to one and only one sector: e-commerce and non-store retail.
In November when the Census Bureau reported advanced retail sales for the first 11 months of the year, the report looked dismal if you drilled down into the details. With few exceptions, retail sales were down, flat or up modestly. The only big news was the 12.1% increase attributed to non-store retailers.
While general merchandise store sales were up 1.4%, department stores were tanking, with sales down 5.4%. So the growth in that sector was all attributed to discounters, warehouse clubs and other general merchandisers.
Through November, retail sales in largely non-discretionary segments, like food and beverage stores (up 3.1%) and health and personal care stores (up 2.9%), stood in contrast to declines of 3.7% at electronics and appliance stores and .6% in clothing and accessories stores.
Furniture and home furnishings stores eked out .4% growth, as did building material and garden supplies dealers, while the very small miscellaneous store retailers posted a 3% uptick. This segment, comprising office supply, stationery, gift and used merchandise stores, accounts for less than 3% of all retail sales
Given the news from Mastercard where e-commerce sales accounted for nearly 15% of total retail, the last two months’ sales results are not going to make much of a dent in the overall annual numbers. Things are bad and getting worse for retailers that rely on brick-and-mortar retail.
Overall, holiday e-commerce sales grew 18.8% over last year, on top of an 18.4% advance holiday 2018. “E-commerce sales hit a record high this year with more people doing their holiday shopping online,” said Steve Sandove, senior advisor for Mastercard, in a statement.
E-commerce continues to capture more shoppers’ dollars in many retail sectors. For the holiday season, apparel retail grew a modest 1% overall, but e-commerce’s share grew 17%. Jewelry sector saw a 1.8% uptick, but online’s share grew 8.8%.
Department store sales continued to fall, down 1.8%, but the sector’s e-commerce share advanced 6.9%, “emphasizing the importance of omnichannel offerings,” the Mastercard statement said.
I’d rather say omnichannel offerings are more than important, but essential.
More brick & mortar right-sizing ahead
With most of retail’s growth online, retailers will continue to struggle to find the right balance between online and their physical footprint.
Through December 20, retail has experienced record store closings with over 9,300 doors shuttered, according to Coresight Research, following nearly 6,000 closed in 2018. The firm’s head of research, John Mercer told Retail Dive the trend will continue into 2020. “I don’t think that means it’s going to abate rapidly and meaningfully. U.S. retail is still over-spaced.”
Scott Carpenter, head of retail solutions at Great American Group, went even further, saying 30% of existing retail space “would cease to exist in its current form, as consumer buying trends shift increasingly online.” He foresees mass closures to continue for up to two more years.
Come early 2020, we can expect more announcements to add to those already scheduled, like those planned by Chico’s, Gap, Office Depot, Bed Bath & Beyond, Christopher & Banks, New York & Company, CVS, and Pier 1 Imports.
Forbes.com contributor Warren Shoulberg predicts that 2020 will finally see the end of Sears/Kmart, as well.
Retailers facing headwinds beyond the convenience of online shopping
The rise of e-commerce share of retail sales is but the tip of the iceberg of a bigger consumer trend. Today’s mature consumers already have too much stuff, so their spending has shifted to replacement and necessity purchases primarily. They are in the downsizing stage in the consumers’ life cycle.
And the younger generation of consumers, who in years past could be depended upon to pick up the slack as they moved into the prime spending years between 35-54, have adopted conscientious consumption habits which show no signs of dying, quite the opposite.
The younger generation is concerned about the potential negative social and environmental consequences of the consumer culture and is doing something about it. They are adopting a less-is-more mindset, evaluating new purchases more rigorously than past generations and turning to more sustainable choices.
“‘Less is more’ applies to the closet as customers are re-thinking relationships with material possessions they already own,” wrote Oliver Chen, Cowen retail and luxury analyst, in a report on the future of retail.
“Subscription and circular economy concepts enable customers to raise the quality of their wardrobes with fewer units and partially remove them from a cycle of purchasing more new items,” he wrote.
Chen continued, “There is a strong momentum toward eliminating waste among retailers,” which looks to be an awful lot of brick-and-mortar retail stores. He further advises that the role of the retail store must transition from being one focused on driving transactions to one for customer acquisition and retention.
But this will be a huge hurdle for established retailers already playing catchup with Amazon in the price/convenience battle. How can they use their physical stores for customer acquisition and retention when customers may not want what they are selling anymore?
The biggest challenge for retailers in 2020 and beyond is what Chen calls the “Uberfication of retail,” where customers are rethinking their whole relationship with material possessions.
Unfortunately, retailers are still struggling with the challenges of the last decade where consumers’ adopted new shopping behavior, evidenced by the rise of e-commerce. Now retailers face an even bigger challenge as consumers rethink the whole value of buying more stuff regardless of where and how they buy it.