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Is This The Death Of Retail As We Know It?

2 October 2017

From Seeking Alpha:

The tremendous ructions occurring in the retail industry continue and are gaining momentum at a tremendous pace as Amazon and the rapid growth of e-commerce progresses. Already the number of bankruptcies in the retail industry for 2017 thus far have exceeded all of 2016 and there are signs of more to come.

Indeed, even retailers typically perceived to be resistant to the disruptive influence of Amazon and the rapid growth in popularity of e-commerce have proven vulnerable.

The Oracle of Omaha Warren Buffett considered by many to be the world’s greatest investor also chose to weigh in on the debate earlier this year, stating at the Berkshire Hathaway annual meeting:

The department store is online now, . . .

There are a range of signals which indicate that it is only going to get worse for traditional bricks-and-mortar retailing which makes it foolish for investors to consider investing in the industry.

. . . .

North American retailers are filing for bankruptcy at a record rate this year. According to industry data over 35 retailers in the U.S. alone have filed for bankruptcy this year with some of the standout names being Toys R Us, Payless ShoeSource and Radio Shack. It isn’t the first time for Radio Shack, it filed for bankruptcy protection just a little over two years ago because of similar problems including a challenging operating environment, rising competition and dwindling sales.

. . . .

The bad news doesn’t stop there, many major department store chains focused on cutting costs by reducing their operational footprint through store closures because the unprecedented competition created by e-commerce and Amazon has left very few other options.

One-time industry leader Sears is aggressively closing stores in a desperate bid to survive. The embattled retailer closed 180 stores during the fiscal year 2017 and plans to close another 150 by the end of its fiscal third quarter which amounts to roughly 10% of its remaining Sears and Kmart locations. For the second quarter revenue fell by a deeply worrying 23% year over year while comparable store sales declined 11.5%.

. . . .

Department store chain J.C.Penney which saw second quarter comparable store sales slip by 1.3% year over year doesn’t appear to be much healthier. It has also embarked on an ambitious restructuring strategy which involves closing 138 stores over coming months.

. . . .

Long-time industry stalwart Macy’s is also planning to close 88 stores and layoff thousands of employees.

. . . .

According to the report grocery shopping’s transition to online will occur at a far more rapid rate than other industries that have already done so such as banking or media because of a greater acceptance of e-commerce among consumers.

Younger, newer and more engaged digital shoppers adopt digital technologies more quickly, and will hasten the expansion of digital grocery shopping further.

. . . .

In a stunning revelation of just how fast e-commerce sales will grow, the National Retail Federation has forecast that as a proportion of total retail sales they will expand by 8% to 12% annually. This is around three-times greater than total retail sales, indicating that e-commerce’s share of total retail sales will grow at a rapid clip.

. . . .

For the reasons discussed investing in bricks-and-mortar retailers is becoming increasingly unappealing and risky. The depth and breadth of the industry’s transformation coupled with rapidly changing technology as well as an increasing appetite among consumers to accept technological changes places almost every bricks-and-mortar retailer under threat.

Link to the rest at Seeking Alpha

PG notes that some of the recent discussions about Barnes & Noble on TPV, have tended to focus on physical bookstores vs. Amazon as an isolated battle.

As indicated by the OP here and in many other posts on TPV, the movement from bricks & mortar to online sales is a megatrend affecting all sorts of different retailers. If people buy children’s clothing online instead of going to Target and small appliances online instead of going to Sears and office supplies online instead of going to Staples, why would books be any different?

There is one additional factor that does make books special, but not in a way that benefits Barnes & Noble and other physical bookstores.

PG is not aware of eclothing or eappliances, but he and many others are regular consumers of ebooks.

Due to a combination of disastrous decisions by management and incredible ignorance of ecommerce and all other things internet, Barnes & Noble squandered the opportunity to leverage its brand and relationship with millions of longtime Barnes & Noble customers into a dominating online store for ebooks (very high profit margins once properly-designed infrastructure is in place) and physical books.

Competent management of any b&m bookstore chain should have looked at ebooks as a wonderful source of increased revenues and profits. Instead of supporting a business structure to deal with thousands of poorly-paid store employees managed by hundreds of not much better paid store managers, a relative handful of well-compensated technical, design and marketing employees located in one place could have generated expanding revenues with consistently higher profit margins.

PG appears to be suffering from an attack of run-on sentences today, so he will stop. The blindness of the entire traditional book business to the opportunities for online sales, particularly of ebooks, is prime fodder for dozens of business school lectures, case studies and discussions for decades.

Amazon, Bookstores, Disruptive Innovation

42 Comments to “Is This The Death Of Retail As We Know It?”

  1. Richard Hershberger

    Perhaps it is my inner Luddite showing through, but I don’t see myself ordering groceries online. It is one thing for me to come home to an Amazon box with my latest book order sitting on my front stoop. But fruits and vegetables, to say nothing of meat and frozen items sitting in the sun for how many hours? This would only work with a delivery window of about four hours from the time I get home from work to when I go to bed, just like for everyone else.

    The model of having it waiting for me to pick up at the store is somewhat more plausible, but I see problems with that, too. When do I want it waiting for me? On my drive home from work, of course. Just like everyone else. Presumably the store employees well be preparing orders over the course of the day. Where will be they staged? If there are frozen items, this needs to be in the walk-in freezer, but this isn’t so good for the fresh fruit.

    None of these problems are unsolvable, but simply declaring the local supermarket to be a distribution center for pickup orders isn’t going to cut it.

    • Wal-mart’s advertising a service where if your front door has a ‘smart-lock’ they’ll send someone to put away the cold stuff for you. (Yeah, letting someone I don’t know into my house doesn’t work for me.)

      As to the rest of it? Got a new mattress coming tomorrow – ordered online.

      • Try rolling that mattress up and getting it into the box if you don’t like it. Let me know how it goes because I need one as well.

        • As somebody who got their mattress delivered rolled up, I can tell you it’s possible to get it back into the box, but it requires time, effort and it helps if there are two sets of arms.

        • Also reading the comments of others to get mattresses (like with books the 2-4 stars will tell you more than the 1 and 5s ever will), a return is not always needed for a refund/replacement – just a few photos that there’s a problem with it.

        • Assuming you’re not kidding about the needing-a-mattress part, I’ll give an enthusiastic thumbs-up to these guys: https://www.loomandleaf.com

          We bought from them a few months back, and we couldn’t be happier with the whole experience.

      • I ADORE my supercomfy foam mattress I got a couple years back from Amazon. Hubby and I sometimes just lie there going, “Why didn’t we get this mattress SOONER!” Great for those of us with aging hips, necks, etc.

        And way cheaper than the ones we saw in B&M stores.

        • Which were all the reasons I placed the order with Amazon. 😉

          UPS guy just struggling up to the door with it; box has been through heck (almost 70lbs so a lot of sliding and rolling when the shippers could get away with it.) Heavy bag inside looked good, not going to take a star off for the box – that thing IS heavy for one guy to lift and move about. Laid it out, notes say it might take 24-48 hours to fully decompress; if someone mentions it, I’ll add more info once that’s done. 😉

    • I’ve had my groceries delivered for seven years, using Ocado (do you have it in America?) Ocado is brilliant, delivering in one hour slots so you pick a time that suits you. It saves me so much time and lugging groceries about. I admit I buy fruit from a market stall near my workshop – cheaper and I can see what I’m buying.

    • I tried this once with a store that would pick out everything and then let you pick it up at the front of the store. I seem to remember it was a new program because it took longer for them to find the bags, charge me and hand them over than it would have for me to pick everything out, and that’s saying a lot. Did not repeat.

      However, Safeway (Vons in SoCal) does home delivery in my area with windows, etc. They address a lot of pain points. You can leave a comment on every item, so the banana problem is solved that way. You can also address substitutions in those notes – will you accept Hunts instead of Heinz? Or not? If that specialty mustard isn’t in stock, you can just say no substitutions.

      One feature that appeals is that you can build up a historical list of items that you commonly buy, and then start with items on that list – makes it easy to check off the specific items you favor and then go into the full grocery listings to find items specific to the list for the week.

      So far my main concern has been price, but lately I’ve seen that it’s not as significant as I might have thought. Sometimes the 2.99 milk is 3.25, but other items are the same as the store price. I will probably pull the trigger at some point and have them deliver during a window when I would go to the store anyway.

      Is it worth $5 or $10 to have them pick everything out and bring it to me? It might be. One “busy person” advice item I remember is that busy people trade money for time. You can’t buy more time in the literal sense, but you can buy your way out of some dull activities that result in more quality time.

    • Some family members who are long passed on were icemen in Chicago. They drove a truck with blocks of ice, carried the blocks on big hooks up to a house or apartment, and dropped them in an available little door in the wall. The door went into the icebox.

      And long ago, but after the days of the icemen, I worked for a grocery store. The boss gave me a list some woman had called in. I went down the aisles filling a basket, ran it through the checkout, and bagged it all. The bags then marked with the name, went on a long table by the back door, and a guy cane by in truck and made deliveries. Amazing technology.

      Some problems have time-tested solutions.

    • I said that….until I tried Amazon Fresh. I’m hooked. Have used them 5 times already. They don’t have as much variety as I like, and I won’t trust them to pick out papaya for me (I eat a half a papaya almost daily for breakfast, but I prefer to pick them myself, and I hate them too ripe.)

      Very convenient. For 15 bucks a month, plus tip, I don’t have to take 2 hours and drive and unload…I just open and put away. Me likey.

      Not for the budgeter. I do take advantage of deals and buy 1 get 1 free, just like I would at Publix. I may try to figure out how to make it convenient but less pricey (like just use the farmer’s market 8 blocks away for cheap produce and use Amazon for the frozen and packaged stuff). Their single-cow burger is so good, that I, a not red-meat eating sort of person, enjoy half of one a week with hubby who loves them.

    • https://www.kroger.com/onlineshopping/

      Sister says her co-worker started using this and loves it.
      I said, but do you really want them picking your produce?

      I think for many grocery items coming by mail works fine, for others not so much.

      I did have a meal service that delivered meals by fedex 2x a week in cooler with dry ice. It seemed to work fine.

      there are solutions for many of these objections…. but you still got to want it more than going to the store.

  2. Yep, I see groceries as the final (digital) frontier because so many of our own quirks are front & center. Overripe bananas might turn off one customer, another will grab them for banana bread, a third only wants the hard & green ones, etc. So, when you place an order for a bunch of bananas, will you have to choose the ripeness as well? What if they don’t have *precisely* what you ordered — will you not get any bananas at all, or the next best ripeness?

    eClothing (catalog shopping) is alive & well, and works best with generous return policies. I’ve got to order some appliances soon (my local store doesn’t have any in stock), so I’ll be checking out the delivery/return policies.

    In terms of ebooks, we’re blessed with hindsight; but I agree that its startling how much the B&N problems can be chalked up to tunnel vision (or blinders). For those of us reading SF, the idea of ebooks (book tapes) have been around for decades, so it is disappointing that so many people at B&N/tradpubs are unwilling to recognize such a game-changing opportunity.

  3. Do you know why companies fail? Because they make boneheaded decisions to save a few pennies while ensuring those at the top still get their fat bonuses.

    Radio Shack got rid of knowledgeable workers. Not long after, they closed up shop.

    I used to work for Penney’s a long time ago. I remember when they “updated” their fine jewelry cases. They sent the outer jewelry display cases (in white) but not the actual displays in white. The solution was to buy cheap pleather and staple it on the existing displays.

    One of many boneheaded decisions.

    • Some companies face a situation where they don’t have the pennies, and nobody is interested in lending them. Decisions can only be made with available resources.

      This looks like what happened to B&N. They failed to take the eBook opportunity when it came by, and could be financed. They didn’t even bother to sell naming rights to someone who did have the pennies and talent. Too late, they found nobody was willing to invest in a catch-up game.

      They found themselves sitting at a table with well-heeled players, and couldn’t even make the ante.

      • It’s never been clear to me that B&N or any other B&M bookseller ever had an opportunity with ebooks. What use is a B&M store for selling ebooks? Go to the store to examine ebooks on their displays that are the same as the equipment required at home to read the books? Look at the physical book to decide if I want the ebook? If I have to look at the physical book, I probably want a physical object.

        B&N, like every other B&M business, had an opportunity to join in the online revolution, but I can’t see that their physical presence conveys them any advantage for ebooks. Maybe their superior curation skills? (That’s a joke in case anyone missed it.)

        • It’s never been clear to me that B&N or any other B&M bookseller ever had an opportunity with ebooks.

          Everybody had the opportunity, but some had advantages very few others did. B&N had a brand name associated with books. That gave them an enormous advantage over the competition.

          Amazon also had a brand name associated with bvooks, and they took advantage of that when the oportunity presented itself.

          • I think I am trying to say that Macys is in a better position than B&N because ebooks whack B&N profoundly, but I am not aware of a similar digital product that whacks Macys as hard as ebooks whack B&N.

            At my local Macys, which I have not set foot in for years, the center attraction is, or was, a makeup and perfume bar. Its attractions are hard to reproduce online. (I guess–I’ve never bought anything there).

            B&N, in the day, drew me in with their bargain remainder shelves, where they sold interesting odd books at attractive prices. Amazon beats them hollow. I frequently get free ebooks that I would have paid 5 or 6 bucks for as a bargain at B&N. And the indie authors are at least as well compensated.

            I am not writing off B&N, yet. I believe that if B&N were to think hard about their retail successes, and apply the essences of those successes to online, they might have a chance. If they can’t make the jump, they are doomed.

            • I think I am trying to say that Macys is in a better position than B&N because ebooks whack B&N profoundly, but I am not aware of a similar digital product that whacks Macys as hard as ebooks whack B&N.

              Would we say B&N was in a better position for online make-up sales because Macy’s would have been whacked?

              Macy’s and B&N both had the opportunity. B&N had the advantage because it was known for books. Macy’s would have had the advantage in online make-up sales.

              eBooks were coming no matter who did it. If B&N stood aside and let Macy’s do it, B&N would have been whacked. If B&N stood aside and let Amazon do it, B&N would have been whacked. If B&N stood aside and let anyone do it, B&N would have been whacked.

              And, as events unrolled, B&N did indeed get whacked. Standing aside didn’t stop it.

              So, the external environment dictated that B&N would have been whacked. There is a good case that they could have mitigated the whack by building their own online business. What they lost in print, they could have gained in eBooks.

              • “Would we say B&N was in a better position for online make-up sales because Macy’s would have been whacked?”

                If B&N suddenly became an effective ebook outlet, would they be stronger than Macys? I can’t even begin to hypothesize an answer!

                Certainly, B&N missed an enormous opportunity when they flubbed on ebooks. B&N is hemorrhaging now from two wounds: they are not competing effectively with Amazon on both paper and digital goods. Macys, as far as I can see, does not face a threat from digital clothing or housewares, because clothing and housewares are still physical objects that can be examined and showcased in physical stores. Macys certainly does face competition from Amazon selling physical objects with digital stores, but at least they are not quite as disadvantaged as B&N.

                If I were a Macys executive, I would be strategizing something to counter an end run by Amazon opening physical stores for examination and showcasing.

                • B&N could have owned the ebook market with the Nook. Here is how. The top 100 authors on Nook for more than a week (or whatever) would get print books put in the store nationwide. They wouldn’t have had to get the audience because they would have had the supply. What indie author wouldn’t (back in 2011) have jumped at the chance to have their book in a store nationwide? I think they could still salvage the Nook if they did this. But they won’t.

                • What indie author wouldn’t jump at the opportunity to have their books in stores nationwide now?

                • B&N was two years behind Amazon in introducing their eBook system. Sony introduced even before Amazon. Sony’e big error was not having wireless in an otherwise very good eReader. B&N’s error was doing nothing.

                • @Jeff– That’s a great plan but I suspect B&N has an even bigger problem with garnering readers than authors.

                  @Terrence– Couldn’t agree more. I was associated for a while with a start up in the 80s that tried to develop and market an ereader. Knew darn well that books on CDs wouldn’t work, but wireless was almost non-existant, the internet was not in play yet, and the device was over an inch thick. Later, I was around when CA courted B&N on introducing AI to their online store. The B&N people didn’t get it at all. To give them a little credit, working with CA management then was quite a thing.

  4. Hardware stores will survive thanks to dummies like me who get 2 out if 3 courses of bricks laid and run out of mortar mix 45 mins before sunset.

    That’s just hypothetical of course. I mean it’s not like that happened last night.

    • I’ve never done anything similar and certainly not this past Saturday at 1600 local time. Nooooo, not me.

      • My first thought was, well, if they could get delivery fast enough.

        My second thought was about a drone over my head with a fifty pound bag of, essentially, powdered rock.

        Uh…

      • The problem with this, of course, is that if all OTHER business moves online, those last minute pickups won’t be enough to support a hardware store in about 70% of the United States.

        Once THAT happens, Walmart, as the last physical retailer standing within a 45 minute drive of most of these places, will start stocking those items, of course, since there’s money to be made. And that, of course, will hurt other retail outlets that serve a niche.

        We’re going to end up with the Buy’n’Large from Wall-e at some point.

    • Yeah, or the run this morning for two washers and a grease pencil. Because I almost had everything!

      …I find myself making a point of going to Tiny Town’s stores for things, so they are around for the last-minute stuff. And if sometimes the price tags are yellowed and I’m taking all four brackets they had in stock, well, they had ’em.

  5. In my country, groups of local farms are online offering crates containing 5 to 6 kg of bio fruit and/or vegetable. They offer various types of them. And you can subscribe, so they deliver you a crate weekly. Which I think is a great idea.

    • Yeah, CSA’s are great. We were set up with one while we were in Alaska. There was one JUST starting up in our last town before we moved, and now we seem to have landed smack in the middle of CSA heaven….so long as we sign up for it in DECEMBER. Oof. Guess we’ll have to see how it goes 🙂

      • I didn’t know this is such a wide spread practices that it has its own acronym. Cool.

      • I’ve thought about this, but none of the ones that I’ve looked at in my area are appealing. Because I only like certain veggies. I don’t want a box of “whatever was growing right now”. I want a box of specific veggies. And if they don’t have those specific veggies right now, then I don’t want what they do have, and I don’t want to pay for it. Which doesn’t really work with that model.

        Although I’d be pretty open to one that was like that for meats, except it would probably be ridiculously over-priced. (And I’m including that I already pay for the quality, grass-fed sorts of meats. But a local farmer I went to literally had a $50 frozen chicken you could buy. One chicken. $50. I’m sorry, but no. That’s crazy.)

        • I was in an organic co-op for a few years, and I just didn’t like that they didn’t deliver like the previous organic delivery service. (I hate to drive) I also, like Shawna, hated that some of the stuff went to waste. I like most veggies and just about every fruit, but when it had things hubby hated, they tended to just mostly go bad. I still prefer to pick out my own in the quantity I really need.

  6. Loved Peapod decades ago in Chicago. They had a time slot window for delivery you could choose, and that solved the frozen/fresh issue.

    All of this is much harder in rural areas, of course, like everything else.

  7. Lyle Blake Smythers

    Someone upstream used the acronym CSA and I had to google it. Where I come from, that’s the Confederate States of America. 🙂

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