What Does Retail Disruption Look Like?

We’ll Show You.

Following a pleasant reprieve from retail apocalypse stories during a generally solid 2018 holiday season, the doomsayers are back out in force on the heels of several recent Chapter 11 filings and a rash of store closing announcements. The sudden “Chapter 22” filings by Payless ShoeSource and Gymboree have been widely covered in business media, highlighting the difficulty of rehabilitating failed retailers. The lingering gloominess around retail is understandable, but bankruptcies and store closing announcements are seasonally prevalent in the first quarter of every year for retailers, so it’s hard to give the recent batch of announcements their proper context, which the business headlines tend to distort.

We know a few things with certainty. America remains overstored on a per capita basis compared to nearly all other advanced economies, due mostly to the vast size of the nation and the dispersion of its population to more far-reaching suburban and exurban locales in the three decades that preceded this century. The stores followed Americans into the burbs. Overstoring was a reality before the advent of online retailing, which has worsened the glut by bringing the store and its wares into our homes. For all the headlines they tend to grab, store closings in recent years have been too modest to alter the imbalance.

Most large retailers continue to be beset by the disruption caused primarily by online competitors and the ongoing adaptation of their business models to the online channel. This has been an ongoing wrenching transformation for the industry. Despite these challenges, the overall U.S. retail sector performed rather well in 2018 and consumers are spending more freely now than at any other time this decade. How can this incongruity be explained? In a word: bifurcation. Arguably, the performance of the U.S. retail sector has never been as segmented as it is today, with the divide between leaders and laggards widening considerably in the last five years.