No, the Sky is Not Falling: Why the Business Media Needs to Refresh the Narrative About Retail
"Retail Apocalypse!" "America's Malls Are Rotting Away!" "Online Shopping is Killing Brick-and-Mortar!"
Those kinds of screaming headlines have become all too familiar following the shakeout of retail since the Great Recession. They’ve also become cliché and overblown.
Try telling that to the business media. More than a decade into our economic recovery, the media remains fixated on the surge of distress and bankruptcies afflicting the retail sector, especially after 2016. Who can blame them? They know a juicy story about the next rumored retailer about to bite the dust will generate clicks and comments. And they know that casual readers will click because retail is so relatable — anyone with a shopping pulse takes devilish delight in a good tale about a woebegone retail chain staggering around on its last legs.
Give the public a compelling retail drama, like the Toys R Us bankruptcy just before the 2017 holiday season, and they’re hooked.
The reality is something different, however. Today’s retail sector is not beset by weak consumer spending, but from a myriad of forces, such as redundancy, demographic impacts, and changing shopper habits driven by advances in technology. True, there’s plenty of sensation: Some 60 retail chains (including grocers and restaurants) have filed for Chapter 11 bankruptcy since early 2016 (representing nearly $28 billion of liabilities at filing, or $20 billion excluding Toys R Us). But that’s not nearly as bad as it sounds when you consider retail is a $4 trillion industry.
The retail sector deserves more than screaming headlines and hyperbole. It deserves a refreshed narrative with more nuance. Here are four proposed changes for the business media to consider to tell a more realistic story:
1. Enough Already with the Apocalypse Metaphors
The troubles with retail are not the end of the world. So why do we continue to hear about an apocalypse or Armageddon or other biblical reference to describe the state of industry? Even if the “last days” metaphor were figuratively on target (it’s not!), this scenario is tired and overused. In fact, a quick search on Factiva found 204 articles over the past 12 months that used the term “retail apocalypse” in their title or first paragraph. The scale of destruction within the U.S. retail sector is simply not worthy of that treatment. Consider this: The U.S. energy sector endured a huge bust cycle in 2015-2017, with more than 250 energy-related bankruptcies, yet not one article or commentator labeled it an “energy Armageddon.”
2. Focusing on the Number of Store Closings Misses the Bigger Point
It’s become a common practice to cite the number of store closings nationally as hard evidence of the “retail apocalypse.” We’ve read that there were almost 7,000 store closings in 2017 alone, more than in 2008 or 2009 combined amid the Great Recession. Is that a revealing factoid? Not necessarily because not all store closings are the same. For instance, Bon-Ton liquidating 270 department stores, many of which are anchor stores in shopping centers, is a far cry from Subway Restaurants announcing it would close 500 shops nationally this year. Basing a story on total store closings gives no consideration to the size of the box or type of store. Square footage lost is far more meaningful. Yes, it can be a difficult piece of data to come by or estimate, but it’s far more telling. And accurate.
3. No, Amazon is Not the Cause of Every Single Retail Bankruptcy
Show us any article about a retail bankruptcy filing and we’ll show you at least a few sentences laying blame on Amazon and/or online competition. Oh, that the story were so simple. Business failure is rarely so straightforward, so let’s not resort to facile explanations for retailers’ struggles and failures. Here’s the deeper dive:
America has been “overstored” since the 1990s and the comeuppance was a long time in the making. If losing 3 percent or 4 percent of sales to Amazon or other online competitors is enough to push a retailer into bankruptcy, then it was hanging by a thread anyway. Nondescript, barely profitable retail chains have been a feature of our shopping landscape for the better part of this century, so pinning the sole blame on Amazon is misguided.
Some omni-channel retailers are in fact competing well online but continue to see operating margins slip and are underperforming overall. Moreover, we estimate that more than one-half of Amazon’s total retail sales (GMV) are made on behalf of third-party sellers, so its “world domination” isn’t exactly what the media often paints, since its website is also benefitting many smaller retailers.
Then there’s the force of disruption on retail from shifting age demographics — the shopping habits, baskets, attitudes and brand loyalties of millennials and Generation Z (post-millennials) are distinctly different from previous generations. This matters more, now that millennials (75+ million) outnumber baby boomers while older, post-millennials are young adults entering the workforce and becoming real consumers, many of whom are deeply burdened by student debt.
4. Let’s Exorcise the Zombies from the Malls
The logic goes that if stores are struggling then the shopping venues that host them — especially enclosed malls — must be as well. We’ve all read about “dead malls” or “zombie malls.” They do exist. Most coverage of retail real estate makes proper distinctions in the quality of a mall based on a variety of attributes, including tenant, property and location metrics. And most analysts agree that about one-third of some 1,200 shopping malls are “C” rated properties that are vulnerable to failure in the next few years. But that is not to suggest that these venues are fated for the wrecking ball or conversion into other purposes, such as condos or educational or religious facilities.
Some malls will certainly fail, their owners will walk and underlying mortgages will be liquidated at deep discounts. New owners will emerge with properties acquired for pennies on the dollar and they may have the luxury of tinkering with property-level changes, such as mixed usage, rent formulas, tenant mix and other changes that could revive the venue. Many lower-end malls will look different a decade from now, and some won’t be around at all. But nobody should be left with the impression that many hundreds of malls and other shopping centers are going to literally disappear as retail space. If they do, then we can revisit the term “retail apocalypse” because we will, in fact, have one on our hands.
Bring on the New Narrative
Clearly the ground has shifted for most large retailers over the last several years, and there’s great concern that the future of U.S. store-based retailing will generate far less profit than it has historically. Retail was a fairly staid business for many decades until the advent of online selling, which has upended the way consumer commerce is conducted.
We don’t intend to downplay the challenges confronting most retailers today, but some media coverage — or perhaps its cumulative impact — tends to exaggerate the extent of the carnage that has occurred (or will occur). It’s time to dial down the screaming and dig into the reality.
Senior Managing Director