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September 1, 2021

The Demise of Bricks and Mortar Retail---Part 1

Friends, by the time I finished writing this Herman Trend Alert, it was so long that I decided to split it into two parts. Today, I will cover how we got here, how bad it really is, which stores are okay, what these trends mean to consumers, two interesting factors, and the future of retail.

According to my favorite statistics website, Statistica, the global market for retail sales is forecasted to reach USD $25.04 Trillion in 2022, and of that, USD $19.2 Trillion is expected to be in physical store sales. While online and social media retail thrived, the COVID-19 Pandemic has taken a huge toll on certain sectors, including shopping centers, local non-food retail, department stores, and office supply stores that were forced to close their doors---at least temporarily.

The Retail Devastation in the United States
Pre-pandemic big retailers and malls in the country were already struggling. Now, they are closing stores faster than ever before. In fact, in 2019 major retailers closed more than 9,300 stores; in 2020, they shuttered another 12,000 stores. According to UBS, over the next five years, another 80,000 stores will close in what is being called the "retail apocalypse." Last year, more than 60 top US retailers filed for bankruptcy including Brooks Brothers, J. Crew, Guitar Center, and Pier 1. Moreover, in 2019, Payless closed all of its 2,100 stores; a year before that, Toys R Us shut down all of its 735 stores. Other retailers, including Bed Bath & Beyond and Victoria's Secret are closing a substantial number of their stores. Since 2016, about 40 percent of the country's major department stores have declared bankruptcy, closing nearly all Sears and Kmart stores, every Lord & Taylor store, Neiman Marcus, J.C. Penney, Lucky Brand, Forever 21, and Circuit City. Even the monolithic Macy's has shuttered dozens of stores and will close another 125 by 2023.

Some Stores are Doing Okay to Great
Not all retail stores have suffered; discounters like TJ Maxx, Ross for Less, and Dollar General who cater to low-income consumers have held their own. Then there's Walmart and the European version, Primark which have thrived during this challenging time.

What Brought Us to this Point
Decades ago, a highly respected direct marketing consultant named Don Libey sounded the alarm when he saw the exponential increase in online sales. Then about 10 years ago, the market began turning in larger numbers to Amazon and other online retailers. Now, complicated by fears of the novel coronavirus, across the country, sales in many sectors of brick-and-mortar stores have plummeted, accelerating the decline. A substantial percentage of consumers, including the well-off, aging baby boomers, have changed their shopping habits---probably forever.

What these Trends Mean to Consumers and the Future
For most of us, the disappearance of bricks and mortar retail is generally not a huge loss. However, it does mean two things: first, it means fewer choices, and second, it means we want have a chance to try clothing items before we buy them---at least until we have AI that will allow us to see apparel on our bodies before commitment. (Think about the Warby Parker app for clothing.) Alternatively, some day we will have Virtual Reality suits that will allow us to see---and feel---actual outfits on our own bodies.

Two Interesting Factors
Even before the pandemic, the US had 40 percent more shopping space per capita than Canada and 10 times more than Germany. There was no question that this retail surplus was unsound. Second, private-equity firms have plundered many retail operations leaving them saddled with debilitating debt.

This COVID-19 Pandemic is not the end for retail; local stores will rise again---it's just that their owners will need to embrace new tactics to attract their traditional and new clientele.

Special thanks to The Week, one of my very favorite publications, for bringing this important topic to my attention.

Next Week's Herman Trend Alert: The Demise of Bricks and Mortar Retail---Part 2
In Part 2, I cover why so many malls have closed and how many more will. I also cover the repurposing of malls, why Amazon is actually launching physical stores, and what retailers can do to keep their doors open.


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