Rise of the Zombie Mall
The so-called “retail apocalypse” started in 2010, when large chain stores in the U.S. began to close thousands of brick-and-mortar locations after the Great Recession of 2008. When Sears, JCPenney, Sports Authority, Payless Shoes, Radio Shack, and other once-dominant brands announced bankruptcies and liquidations, they only accelerated the trend.
By 2017, Credit Suisse predicted 25% of U.S. malls could close by 2022. Analysts warned of “death-defying zombie malls, where the stores are closed, but the doors are still open, and the lights are still on.” They blamed changing demographics, rising rents, failed financial plays, and the e-commerce explosion, for the demise of traditional retail.
Today, the outlook is not as grim as market experts once thought. Perhaps American retail isn’t dead after all; it’s just shedding out-dated business models in favor of new, more relevant channel strategies.
To be sure, pockets of the industry are going or gone and unlikely to come back. But a recent report by IHL Group says the widely-reported “apocalypse” is limited to a small group of merchants with unique structural issues, not a systemic failure of U.S. retail. How do they know? According to the report:
- More chains are opening, rather than closing stores; 65% of chains in the U.S. increased the number of stores they operate in 2019, compared to 43% in 2018.
- The total number of physical stores in the U.S. increased by 8,575 between 2017 and 2019.
- Retail sales overall increased by 5.5% to $251 billion in 2018, and online sales were up 17% over the previous year.
- BOPIS (Buy-online-pickup-in-store) grew by 50% for the 2018 holiday shopping season.
- The leading retail investment fund rose 13% to a record high in 2018, more than double the return of the S&P 500 Index.
The real problem, according to the IHL report, lies with department stores and specialty apparel merchants that traditionally anchored suburban malls. Those are the retail chains that expanded their footprints beyond sustainable levels. The biggest issue they face now is a lack of mobility; malls are fixed in place while demographics and consumer shopping preferences are continually shifting.
The good news is that most American merchants will live to sell another day. Only 16 retailers account for 73% of reported store closings over the last year. Why have some survived while others vanished? The winners are embracing omnichannel strategies with in-store, online, and mobile shopping options.
My last post talked about why pure-play online retailers like Casper Mattresses and Warby Parker decided to buck the apocalypse trend and open new physical store locations. They realize 90% of purchases are still made in the real world, and stores will always be involved in the majority of retail fulfillment.
Surviving Retail Disruption
Writing about the great retail meltdown in 2017, Derek Thompson of The Atlantic pointed out that “One of the mistakes people make when thinking about the future is to think that they are watching the final act of the play.” He says businesses don’t just disappear when society or technology throws them a curveball; they transform into something new and better.
Physical locations where customers can browse, sample, and buy or return merchandise create a halo effect for online channels, and vice versa. The top 10 retailers in the U.S. today are brick-and-mortar, with the exception of ever-present Amazon.com, and for every retailer closing stores, 5.2 are opening new locations.
If you’re a multi-level marketing (MLM) company or direct-to-consumer (DTC) brand worried about the retail apocalypse, don’t be. Ask me how we can help you create a successful physical fulfillment and distribution center, or visit us at www.curagroup.com.