Monday, August 20, 2018

Three Factors Affecting Retail That Should Concern Marketers -- Even Those Outside the Sector

(This article originally appeared in

Amid news coverage about the latest U.S. economic growth and unemployment figures -- both, coincidentally, at 4.1% -- there's a story that hasn't been mentioned. It's not the potential impact of tariffs and trade wars. It's not about whether the coal sector should (or can) be revived.

It's about retail, which contributes $2.6 trillion annually to U.S. GDP, according to the National Retail Federation, approximately 15% of the total economy. That includes retailing companies along with other companies that support the retail industry, such as logistics, including trucking and shipping; warehousing; construction and maintenance; agriculture; manufacturing; technology; and health care. 

Unfortunately, the retail sector has an opposite story to tell: Traditional retailers are not only not growing or hiring, many -- including Macy's, Sears, Gymboree, Lord & Taylor, Foot Locker, Gap, Starbucks, Subways, GNC and at least another dozen -- have announced plans to close more than 2,500 stores over the next year. Worse, Toys R Us (735 stores), Teavana (365) and Bon-Ton (256), among others, are shutting down completely.

I've never been a big shopper but the death of traditional retail -- what some are calling "the retailpocalypse" is bad news for marketers for the following reasons:
  1. Laid-off workers may cut back purchases, ignore marketing messages: There are employees at 3,868 stores who will lose their jobs and benefits and will need new jobs. Even if no other store closes -- and after I originally wrote this, Brookstone announced it would close 100 mall store -- retailers have been cutting jobs even while maintaining the same number of stores. According to the Wall St. Journal, Macy's has shed 52,000 jobs since 2008; and according to the National Retail Federation, the sector employed 29 million people in 2012, but that number was down to 15,836,200 as of May 2017 -- almost a 50% decline in just five years. With reports that businesses are having trouble finding good employees, there may be good news for laid off retail staff. But those open positions may not be nearby and almost certainly will require convincing recruiters that non-traditional employees (since former retail employees may not have the necessary experience or skill sets) should not get screened out. Making a career transition is difficult, and we know that some may be unwilling or unable to secure full-time work in another sector. The implications for marketers: when people are out of work, they may not be receptive to marketing, promotions, etc. 
  2. Store closings affects malls, local communities: By April 2018, announced store closings projected the loss of 77 million square feet of real U.S. real estate, on pace to surpass last year's record of 105 million square feet, the previously highest loss reported since 2008. These closings have affected prime locations like New York's SoHo neighborhood, malls and small towns. The problem for marketers: is the potential impact on communities and social patterns. According to a Time article, "The Death and Life of the Shopping Mall," from 2017, "The shopping mall has been where a hug swath of middle-class America went for far more than shopping. It was the home of first jobs and blind dates, the place for family photos and ear piercing, where goths and grandmothers could somehow walk through the same doors and find something they all liked." So when malls lose retail tenants, people stop hanging out. According to Bloomberg Businessweek, the shift to e-commerce "has devastated" Britain's main streets or central shopping districts. The result: marketers may lose another touchpoint with consumers such as branded in-store merchandising and displays.
  3. Loss of local retailers hits local media: Retailers, once an important source for local advertising, have cut back on advertising. Local newspapers have seen a decline in advertising that may be attributable to the drop in retailers' ads, and we continue to see local papers fire staffs and shrink the size of their papers. The problem for marketers: If newspapers -- both print and online -- shut down, marketers will lose important vehicles to reach consumers, whether with paid communications (such as circulars, coupons, and ads) or earned (such as mentions, articles, etc. via PR). 
Unfortunately, we're seeing a potential downward spiral. As more people get laid off from retail jobs, they may spend less so that more stores close. As more stores close, those businesses that support retail -- including, for example, toy makers who used to sell exclusively through Toys R Us -- may also close. Too many shuttered locations sends a negative message to other potential companies, disrupting the local economy as residents either order online or must drive further and further to buy the things they used to be able to find in town. And local media continues to fade away.

Traditional retailers need to know how to compete to offer what customers want, which includes selection, low cost, ease of returns. It takes more than Wal-Mart dropping "Stores" from its official name to show it's an e-commerce player. In the U.K., which has the highest rate of online purchasing according to Bloomberg Businessweek, there have been calls from people like the Chancellor of the Exchequer to "find a better way of taxing the digital economy."

It's important to note that Amazonification -- the dominance by Amazon, which is an often-cited reason for traditional retail's woes -- may not be inevitable. According to the Wall St. Journal's Christopher Mims "Even Amazon, a Colossus, Has Its Limits," part of where Amazon is most successful is in driving down prices of commodity items, not in developing premium devices like an iPhone (its success with Alexa notwithstanding). 

The bottom line: whether or not marketers operate in the retail sector, they need to be aware of the challenges facing retail. Marketers must look to make suggestions how their clients (whether they work in house or for an outside agency) can function during this period of disruption because some of the issues may also impact other sectors.

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