With e-commerce booming, we will continue to see a convergence between the digital and physical world for years to come. Those who conquer this growing trend will be the market leaders. Its really simple when you break it down to that level.
Looking back even 10 years ago, we had the first ever iPhone released in 2007 by Steve Jobs and Apple. A smartphone capable of accessing the vast Internet, text messaging, playing music, making phone calls and much more. Now fast forwarding 10 years, it’s phenomenal what we’re able to accomplish at the tip of our fingers and the click of a button. We’ve truly moved from brick-and-mortar establishments to click-and-order. The buzzword of the past few years!
Even Sears, a once mighty department store chain founded in 1886, is now tottering on the brink of closing. We see it everyday in the New York Times, Wall Street Journal and on TV. Hundreds of thousands of stores are closing their physical storefronts and doors in order to move online. Towards the end of 2016, Walmart acquired an incredible e-commerce store called Jet.com for around $3.3 billion. This has allowed them to compete with others in the online sense when it comes to buying groceries, personal care, electronics, and many other products and services.
This impact is far-reaching and has been tipping for a while now. For example, Credit Suisse estimates that as many as 8,640 stores with at least 147m square feet of retailing space could close down just this year — surpassing the level of closures after the financial crisis and dotcom bubble. See below:
The downturn is hitting the hardest on the U.S. labor market. The retail industry has lost an average of 9,000 jobs a month this year, according to the Bureau of Labor Statistics, compares with average monthly job gains of only 17,000 last year. Shopping malls and department stores are the biggest losers from this paradigm shift, and the pain is worsened by a whirl of construction in the decades leading up to the financial crisis.
Bank of America and Merrill Lynch estimates that U.S. retail floor-space is down 10% since 2010, while department store sales are down 18%. Even Bill Ackman, the prominent Pershing Square hedge fund manager, said, “The department store industry I think is largely in a death spiral.”
It doesn’t make sense from a business or financial standpoint anymore to have to pay large amounts of money in rent for the building space, payroll for all of the employees, incredibly high taxes, hundreds of thousands of dollars in inventory and many other expenses. By shifting all of that online, expenses are drastically decreased.
With that being said, the decline of the iconic American shopping mall is only the most visible aspect of a far broader revolution that is upending the entire world of commerce. Online-only purchases account for a little over 10% of all U.S. retail sales, but the share is growing quickly!
Think about it this way opportunistic entrepreneurs and individuals looking for more financial gain in this digital world. That means that 90% of sales and commerce are still being done in the traditional way of exchanging dollars for goods in a physical storefront. What do you think will happen when 20%, 25% or 50% of U.S. retail sales are done in the form of online-purchases?
This logically just makes sense to capitalize on when thinking about it like you own your own form of online real estate. It can be related to when settlers bought up the land in New York City or even the entire Louisiana purchase in the United States. Talk about a win-win deal!
Across the board, consumption patterns are evolving, especially among younger Americas who are much more comfortable with an online-only experience than their parents. But even if their parents, aunts, uncles and older individuals aren’t “comfortable” with these patterns yet, there’s going to come a day and time where they will have to be.
Given the clear advantages in technology and data, investors are unconvinced that traditional players have what it takes to compete with their online rivals. Its as if the old-world retailers and advertisers are bringing a knife to the fight, and technology companies are rocking a heat-seeking missile. Who do you think’s going to win?
This is a massive secular change to how our economy and society operates. The social and economic consequences of these shifts are going to be huge. At this point it seems as if we’re just at the start of the 2nd inning. There’s a whole lot of the game left to play!
I’ve talked about it before but this time around I wanted to back it up with more facts, charts and data for all of the business minded and analytical people out there. The charts come from a good article I read in the Financial Times and research I’ve done on my own end during the past 2 years.
Opportunities only come knocking once, maybe twice if you’re lucky enough! I just don’t want individuals to miss out on this opportunity and come back around in the next 5–10 years to witness what they missed out on or what could have been. Breakthroughs come when we get people with knowledge thinking creatively and taking action.
Thanks for reading this week’s blog and, once again, click the heart shaped button to share this with others. Like, comment or share if this resonated with you or anyone you may know who enjoys business, retail and e-commerce too. It’s greatly appreciated so enjoy the day and have a great weekend y’all!
My Very Best,