They’re dropping like flies. Macy’s. Sears. Sports Authority. Kohls. Who’s the next big big box retailer we’ll read about shuttering hundreds stores nationwide after yet another bad quarter? Regardless, who might be next (we can only speculate at this point), there’s a toxic combination that seems to plague each and every one of them. A huge brick-and-mortar footprints + humdrum, run-of-the-mill inventories + being on the wrong side of consumer preferences = the prestige of a being a front-page retail pariah. When I read this week’s news about the shortcomings of Macy’s and Sears, I couldn’t bite my tongue any longer. I had to give my opinion on why I believe that brick-and-mortar retailing isn’t dead, it’s changing so quickly that retail juggernauts refusing to adapt fall victim to their self-righteous “we’re too big to fail because our customers love us” follies. I’ll start by talking about the three ingredients poisoning these big box retailers.
Problem A – Giant footprints
Admittedly, this is low hanging fruit, but important none-the-less. Stores like Macy’s and Kohl’s occupy massive spaces. The average square footage of these stores hover around 80,000-90,000 sq feet. To put that in perspective, the average square footage of a TJ Maxx (performing much better it’s larger counterparts) is 30,000 sq feet. Sure larger stores might carry more SKUs, but performance clearly indicates that inventory volume isn’t all that it’s cracked up to be in brick-and-mortar retail. The productivity per square foot simply isn’t there and when you start factoring the increased quantity of staff, property taxes/rent, and other overhead costs associated with operating these facilities, the need for a large store simply isn’t there. For that reason, I would expect to start reading about closings from Dick’s, Von Maur, and Cabela’s in the not too distant future.
Problem B – Unoriginal Inventory
If you look in a Macy’s, you’ll see familiar brands left and right. Nike, Under Armour, Levi’s, Michael Kors, Calvin Klein, Tommy Hilfiger, and more are everywhere. The problem with that is that all of those brands are found at a dozen other brick-and-mortar retailers preventing the inventory from truly being unique. Furthermore, many of those brands operate their own brick-and-mortar stores that provide a better customer experience than a big box, offer a greater selection of inventory for that specific brand, and in most cases sell product at the exact same price.
Problem C – Running with the Wrong Crowd
Additionally, there’s increasing speculation that many of the brands that Macy’s has sold with pride over the last few decades are starting to die out in popularity. If you look around in a given crowd of people today, you won’t see nearly as many people wearing Ralph Lauren clothing or carrying around Coach bags like you did as little as 5 years ago. Since many big box retailers foolishly continue to hang their hats on these brands, we’ll continue to see them fail to meet profitability expectations on Wall Street.
Brick and Mortar Isn’t Dead
I mentioned that I didn’t think brick-and-mortar retail was dying the death that some people thing. Of course, the rapid growth of Amazon has created a de facto monopoly on e-commerce, but that hasn’t prevented an interesting rise in upstart brands with growing popularity. Social media combined with relatively inexpensive digital advertising channels has democratized retail for many of these new and upcoming brands. Just check out the likes of MVMT Watches or June & January for examples of this growth in action. These brands, if they play their hands right, can create enough demand for brick-and-mortar retail experiences. Furthermore, they can manage the boom-bust cycle that many brick-and-mortar chains face utilizing e-commerce. When you’re a smaller business, it’s much easier to manage e-commerce profitably without being committed to large scale IT investments. With all that said, it’s much better to be an upstart than a big-box dinosaur in 2017.