I found these statistics in Stephen Moore’s Wall Street Journal op-ed on the future of retail startling:
By his estimate, the U.S. has at least 50% more retail space per person than Canada—and Canada’s figure is 50% higher than Germany’s. “It’s Germany that has it about right,†he concludes—which would mean the optimal amount of retail space is less than half the current American total. “I’ve traveled all over the country,†Mr. Freeman says. “The challenge is to find a place where retail isn’t overbuilt.†If he’s right, a severe real-estate contraction is coming, and weak stores and malls will get eaten alive. Can Macy’s survive? Probably not: “They are run by bean countersâ€â€”lawyers and accountants, not entrepreneurs.
There are some things in the op-ed that I agree with, for example this:
Somewhat counterintuitively, he argues that e-commerce is “not our enemy†but is becoming complementary to retail. Here’s his challenge to anyone who thinks digital sales are set to crush the old analog kind: “Explain Blue Nile. They were one of the first to sell online jewelry. Blue Nile comes in and blows the door off as one of our most successful stores. Who else? Apple! You can buy your phone online, and they can ship it to your house. But the Apple Store almost everywhere does giant business. Microsoft—same thing. Peloton is another one. They make exercise equipment and have just opened a store next to Nordstrom, highest sales in the country. They’re killin’ it.â€
With a twinkle in his eyes, he tells the story of Bellevue Square’s 1,800-square-foot Tesla showroom. Tesla is largely an internet-based company, but it helped produce one of the biggest days in the mall’s history when Mr. Freeman says it sold close to $16 million worth of cars in 12 hours. “There were lines 10 blocks long, and the average person waited five hours,†he recalls, “the way people used to wait outside stores on Black Friday. There was even a sign in front of the store that read ‘limit of two cars per customer.’ â€
If that isn’t enough, he adds: “Guess what’s one of our most successful stores we just opened up three months ago? Amazon. They already mastered online book sales. Why are they creating a physical presence? Because they know they need to connect and fuse with you as a consumer.†That’s what he means by emotional fulfillment.
However, I don’t agree with one thing the op-ed claims. I don’t think it’s the “age of Amazon”. In fact I wouldn’t be a bit surprised if Amazon announced its intention of getting out of retail in five years. It isn’t making money in retail. It is in web services. Amazon’s stock has exploded in the last two years. How long can the company maintain that pace? Will its investors accept a company whose stock price doesn’t increase, that doesn’t show profits, and that doesn’t pay dividends?
I think we’re in the age of Walmart and Walmart will be the ultimate victor in the online retail space.
However, back to those statistics. Can the United States really prosper on the basic of personal consumption expenditures? Or, as I believe, do we really need to rebalance our economy in favor of business investment? Businesses used to invest a lot more with a lot less sales than they do now. The change is not due to phlegmatic personal consumption. It’s due to a decline in entrepeneurship among American managers.
Amazon may be playing a long game. They’ve built systems and infrastructure to become a retail platform, not just a retailer. Maybe they intend to be like Ebay but for retail.
Presently, slightly over half of Amazon’s sales are third party sellers. And eBay is already in direct competition with Amazon for those sellers. Many sell on both platforms.
Fun facts; the median household income in the city of Bellevue is 86K; the median household income of the city of Medina which Bellevue Square borders is 182K. Make your conclusions from that context.
Amazon won’t quit retail; at most they will split AWS from the rest of the company.
Used to be this odd corner of business investment called “research and development.” Generally speaking, it used to be taken for granted that sensible fore-sighted companies spent a bunch on R&D. Places like Intel came in for particular praise.
And in the mid 1990’s that all changed. Economists proved to themselves (and to the businessmen listening to them) that R&D was just too problematical. It didn’t always pay off, it didn’t necessarily pay off quickly. Even worse, because the barriers around Intellectual Property were so thin, competitors often took the bright ideas and shiny gadgets that the big R&D spenders had developed, marketed them more adroitly and profited far more than the laggard “innovator.”
And our economy has benefited from this wonderous insight for more than twenty years. Even better, the fraction of GNP that went to government funded R&D has been trending downward since the days of Richard Nixon, and Donald Trump’s appointees are doing their best to reduce such spending even more.
Which isn’t quite what you’re pointing to as “a decline in entrepeneurship” but seems to lie in the same direction.
Nowadays, retail stores sitting side-by-side the mall offer the same meager range of goods and compete solely on price. When I first moved to Columbus, OH, in 1972 they had a local, old-fashioned department store called Lazarus. It was upscale and comprehensive. Their downtown store sold everything from bobby sox to grand pianos, and it had a couple of restaurants, a bar and a barber shop. The top floor had fantastical Christmas displays. Lazarus also had smaller stores in the malls around town. It was a treat just to walk through those stores.
A number of years ago, Macy’s came to Columbus and bought Lazarus. They immediately went decidedly downscale and closed the downtown store. Nowadays Macy’s is in a few malls around Columbus, but they are smaller that the next door Sears and sell lower quality goods. I am told that the Macy’s in New York and Chicago are still upscale, but not here. In Columbus, if you want upscale stuff, you have to go to a major coastal city or go online. Amazon is usually the best choice.
When Sears, Penney’s and Macy’s disappear in the near future, there will be a niche for an upscale Walmart. They already compete with Macy’s, Sears and Penney’s on some items. Soon they might relaunch the comprehensive urban department store.
That may depend on your definition of “upscale”. My experience is that “upscale stuff” isn’t available in the U. S. at all. You’ve got to go to the U. K., France, or Italy. And it isn’t available online.
My point is that the deficit isn’t limited to Columbus. It’s true of New York, Chicago, and Los Angeles, too. Everything is mass market lowest common denominator.
I first noticed this when I was working in Germany. The clothing offered at ordinary stores in Germany was of higher quality than that for sale at the best stores in the States. I think it reflects a difference in lifestyle and taste. Europeans, generally, don’t tend to regard things as disposable as we do.