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Is Brick and Mortar Shopping Dead in America?

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Formerly an economics and humanities student at UCLA, Oe Kaori is now an intern for the United Nations.

Shopping in Physical Stores is Slowly Going Away

An ugly trend is continuing to play out in America’s shopping meccas. Some of the biggest retailers in the country are shuttering stores at a rapid pace. In just the last few weeks, Sears announced plans to close 72 more stores. JCPenney announced 36 closures. Payless is on the cusp of shutting down, potentially leaving a single NYC location. And on top of that, sports Authority went bust last year, leaving 142 stores empty.

There are lots of factors that go into the retail apocalypse, but analysts say the dominance of Amazon is steadily making it harder and harder for brick-and-mortar stores to survive. The online retail giant accounted for nearly half of all e-commerce sales growth in 2016, according to eMarketer. Amazon now holds 50.6% of the total US e-commerce market. But despite the threat of Amazon, there are still about 6,000 physical stores in the United States, according to Credit Suisse. And analysts say a large part of that growth is due to shoppers like you and me.

We’re still splurging on certain items in physical stores, like clothing and cosmetics. “The reality is that even as Amazon expands its reach, physical stores have some distinct advantages,” said Michael Liss, managing director of retail investments at Citi Private Bank. Liss added that many of these stores offer quality services and selections that you just can’t find online. “There’s a difference between having a website where you can buy blue jeans and a store that has 30,000 pairs,” he explained.

Experts say this trend won’t necessarily hit all malls at the same time. But the number of store closings will likely increase as 2021 gets underway. “As an investor, I am definitely concerned about the downward spiral of department stores,” said Tom McGee, CEO of the International Center of Shopping Centers. “The number of store closings this year and next year are going to be dramatic.”

The Future of Retail and Overseas Buyers

Analysts estimate that while J.C. Penney is trying to avoid liquidation, smaller retailers are closing or seeking tenant relief, and venues such as theaters are still closing temporarily (COVID-19), more than half of department stores in U.S. malls could close within the next five years. At the same time, other retailers that are concentrating in malls, such as Neiman Marcus and J Crew, which recently filed for bankruptcy, are also likely to close their stores, the CoStar group said.

Peter Mallouk, the owner of one of America's biggest high-end stores, believes it is. Mallouk, the owner of Armani Exchange, Gucci, Ermenegildo Zegna and three other brands, recently said, "The American consumer is doing more shopping online than ever before. It's likely that in the future, the notion of going to a store to buy something will be completely unrecognizable to consumers." Retailers are dying. David Simon, the CEO of Simon Property Group and one of the world's richest retailers, told investors last week that most retailers "are dying, not surviving."

But Mallouk and Simon are two guys in America who've made fortunes by running malls in America's richest towns. Mallouk is convinced that the future of retail is in America, not overseas, and that we need to keep driving America's malls. His main reason?

"The malls of the future are going to be branded experiences, which means branded malls." He's right that malls of the future are going to be branded experiences. But it's hard to see how Sears Holdings (shld), J.C. Penney (jcp) and Macy's (m), which have their roots in malls, are going to be among them. These stores were created in malls, and they need the malls for an avenue to the retail market.

"I'm a guy that bought the stores of a defunct department store to use as retail. This is a new world for me, and it's hard for me to sit here and look at today's business model and assume that's going to be viable forever," Mallouk said. Mallouk also said the key to being a mall owner is to "build from scratch, one new shopping center at a time." That's not exactly how the rest of America's retail business works, though. For better or worse, most malls today started with department stores — first Sears, then J.C. Penney, and now Macy's. Department stores continue to have value in America. Macy's, despite reporting disappointing sales this week, still has more than 700 locations in America and North America.

That's about the same as Macy's had in 1985, when it was the world's largest retailer. But the retail landscape has changed so much in the past decade or so that Macy's doesn't stand a chance against a place like Amazon or Alibaba, where the customers are increasingly going to shop. If a department store is going to survive the next ten years, it'll probably have to go the way of the Blockbuster. It'll have to disappear.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2020 Oe Kaori

Comments

Angel Guzman from Joliet, Illinois on October 23, 2020:

I really hate and fear that Wal-Mart and Amazon are all that's going to be left. Covid-19 really sped up retail problems and hopefully next year when we have a vaccine retail recovers. You can't try on clothes online.

Oe Kaori (author) from Yokohama Japan on October 22, 2020:

Me too I prefer online shopping it's way easier

Kalpana Iyer from India on October 22, 2020:

Online shopping is both a boon and a bane. I prefer to shop clothes at a physical store - to ensure the best fit. But during work days when I can't step out to shop, I prefer online shopping. I am making a more conscious effort nowadays to shop in brick and mortal stores.

Oe Kaori (author) from Yokohama Japan on October 21, 2020:

It's a little uneasy because of COVID-19 nobody wants to be in public places and unsafe

Liz Westwood from UK on October 21, 2020:

In the UK the demise of the High Street stores has been hastened by COVID-19. Stores are shutting as shoppers opt to stay at home and shop online.