Can I get some resources on the retail apocalypse?
November 11, 2018 9:05 AM Subscribe
Do any of you know about good articles and books about the decline of US brick and mortar fashion retailers in what appears to be an otherwise thriving economic landscape? I periodically see the "what" in the news, but I want more information about what economists and industry people think about the "how" and the "why" of it. If anyone has any information about the decline of the suburban mall that addresses closure of the stores therein and not just a shift in presentation to open air markets, that would be good too.
I don't have specific links or case studies, but you can read up on the life cycle of Cupertino's Valco Fashion Park.
posted by humboldt32 at 9:57 AM on November 11, 2018 [1 favorite]
posted by humboldt32 at 9:57 AM on November 11, 2018 [1 favorite]
The Youtube channel Company Man discusses the rise / fall of individual companies, if that's helpful at all.
posted by batter_my_heart at 11:22 AM on November 11, 2018
posted by batter_my_heart at 11:22 AM on November 11, 2018
There's some discussion about the decline of retail and links to other articles in this back issue of the email newsletter So What, Who Cares? written by Lisa Schmeiser.
posted by meadowlands at 11:27 AM on November 11, 2018 [1 favorite]
posted by meadowlands at 11:27 AM on November 11, 2018 [1 favorite]
Fortune.com on the role of private equity in retail stores' success or failure.
The Toys"R"Us Bankruptcy and Private Equity
posted by Sheydem-tants at 11:33 AM on November 11, 2018 [5 favorites]
The Toys"R"Us Bankruptcy and Private Equity
posted by Sheydem-tants at 11:33 AM on November 11, 2018 [5 favorites]
This book goes into how the shift to offshore manufacturing of clothing resulted in the shuttering of small retail clothing stores. It was a really interesting read that changed the way I looked at my own clothing choices.
posted by Ruki at 11:37 AM on November 11, 2018
posted by Ruki at 11:37 AM on November 11, 2018
Racked had some great fashion/retail/consumerism reporting. They recently got rolled into Vox.com but the archives are still up, check out their longform and feature articles.
posted by yeahlikethat at 1:27 PM on November 11, 2018
posted by yeahlikethat at 1:27 PM on November 11, 2018
You might want to look at some industry groups and VC research. Couple off the top of my head:
IAB covers the shift to direct brands over big box retailers, this pdf is really good.
VC firms covered here, and Forerunner Ventures (NY Times link) publishes good insights.
posted by hampanda at 2:16 PM on November 11, 2018
IAB covers the shift to direct brands over big box retailers, this pdf is really good.
VC firms covered here, and Forerunner Ventures (NY Times link) publishes good insights.
posted by hampanda at 2:16 PM on November 11, 2018
This article is not a scientific how/why, but it is a highly entertaining subjective account of working for a dying retail entity, with some insight into why this brand may have failed.
Also not scientific, Jezebel has done some decent reporting on the retail apocolypse, as seen in this article and this one.
posted by key_kat at 3:14 PM on November 11, 2018 [2 favorites]
Also not scientific, Jezebel has done some decent reporting on the retail apocolypse, as seen in this article and this one.
posted by key_kat at 3:14 PM on November 11, 2018 [2 favorites]
I want to say the article I read earlier this year or last year that was a good solid summary of how things have developed and accelerated was in The Atlantic.
posted by Fukiyama at 4:47 PM on November 11, 2018
posted by Fukiyama at 4:47 PM on November 11, 2018
Best answer: Alright. I've made the larger topic of shopping affinity my bread and butter for about 12 years at this point. We can talk through a whole bunch of causes, but lets start with some basic fundamental truths.
1. Shopping has seasonal patterns to it - especially for mall and luxury markets. This means when you examine data on a long enough trend you can tease out this seasonal component and really look at the fundamental trend in shopping. If you want to understand this basic fundamental reality, the term you are looking for is Seasonal Adjustment. From a retailer's persepective, they generally look at a 52 week cycle, but - lump enough retailers together and look at the entire industry, and you are able to view the retail world through the 12 month seasonal adjustment cycle, known as an x12 seasonal adjustment. There is a piece of FORTRAN code I saw about 10 years ago which did a 52-week seasonal adjustment, but I've never seen it adapted into a reasonable econometric package and I'll freely admit I've never put the time in to doing it as well. But, if you want to know what is really going on, and whether a given year is a good year or a bad year, you really need to understand the seasonal trend.
2. Once you account for seasonality, retail foot traffic peaks within 9 months of a store opening and then follows an exponential decay curve: N(t)=N_0e^(-xt). The bottom of the curve is set by a determining the minimum sustainable foot traffic for a given area - generally something you model off of the economic composition of the households in the area. That initial maxima is pretty clear - and the second that a small retail business hits it, it is extremely unlikely that they will ever come close to hitting it again. From experience, on the luxury side, a store has about a 6 or 7 year period before they reach the steady state at the bottom, with economic conditions, affluence, and product demand extending and contracting that timeline. I'd also note, that most businesses remodel every 7 years or so, not explicitly for this reason, but that rule of thumb fits pretty well in line with it. There are only two ways out of this trend in foot traffic: move your store to reach a new audience, or remodel and/or relaunch your store periodically. This is not the mom&pop 7 year market trend that I've likely referenced in the past on the green/blue, but is specifically for national and large regional players.
3. All the good spots are taken, so now the question for a retailer / mall trend to determine is whether they want to double down with a group of successful customers, or expand into lower potential customers. To put it another way: Is it more profitable to open up a 5th store in the New York suburbs, or are you better served by opening up something in Des Moines, Iowa? Now, it isn't just about opening up a store, you also have to have the supply chain to get goods to the store, so this is where you see East Coast and West Coast stores struggle to bridge middle America. "Red states" do have pockets of affluence, but it is hard to have a big enough pockets of affluence to accept the setup costs to expand warehousing and locations all at once. I mean - it is really really hard. Getting to Atlanta is no problem. Finding something that crosses Tennessee or Ohio is a retail nightmare. This is one of the reasons that Costco operates as 5 or 6 distinct regional companies and BJs has yet to make it westward.
4. Square footage of a store must be profitable/efficient - that means that every store in your chain carries your top SKUs. Only in bigger stores, or stores with sales above a certain threshold, can a chain afford to expand their selection. For this reason, you have stores that maintain heavy catalog sales have a higher degree of success - but, keep in mind - that also means that those stores train their loyal browsers to eventually shop in a catalog / online business format. The second that someone walks out your door to shop your store via catalog, you've also put them at risk for defection to Amazon.
5. Once you account for foot traffic to be continually declining, and your selection to be your highest turn items, stores are managed for profitability - not sales growth. Remember: Target and Walmart sell everything you want. Forever 21 is a niche market. And, with the rise of cheaper, distinctive textile manufacturing, Target and Walmart stopped selling boring clothes and have successfully launched their own private labels - as the Simpson's once said: Made For Kids, By Kids. Even if Target misses the mark on their fashion, they are big enough to make it flounder through - AND they can prop up a disaster with the other products in the store. Mall stores can't do that.
6. Store growth (adding locations), eventually breaks because of economies of scale. When you have one store, adding another store is 100% growth. When you have 1000 stores, adding 3% more stores (in sub-optimal locations) requires having the support staff to plan 30 store openings. If you are down around 200 stores, and tend to open 5 stores a year (2.5% growth), it becomes real hard to continually open 5 stores a year - especially considering that in 10 years, 5 store openings a year will be less than 2%...
7. Private equity has bought up a lot of retail and retail is only now figuring out the problematic realities of balance sheet economics. Ignoring the management of retail for profitability only, and the declination of expansion, now consider that the private equity firm effectively saddles the now private company with its own debt, effectively freeing up the liquidity of the private equity firm pretty quickly and leaving the company servicing their own debt. In the case of Toys R Us, the roosters came home to roost.
--
I can go on. But I need you to ask me specific questions if you want me to do so.
posted by Nanukthedog at 6:14 PM on November 11, 2018 [18 favorites]
1. Shopping has seasonal patterns to it - especially for mall and luxury markets. This means when you examine data on a long enough trend you can tease out this seasonal component and really look at the fundamental trend in shopping. If you want to understand this basic fundamental reality, the term you are looking for is Seasonal Adjustment. From a retailer's persepective, they generally look at a 52 week cycle, but - lump enough retailers together and look at the entire industry, and you are able to view the retail world through the 12 month seasonal adjustment cycle, known as an x12 seasonal adjustment. There is a piece of FORTRAN code I saw about 10 years ago which did a 52-week seasonal adjustment, but I've never seen it adapted into a reasonable econometric package and I'll freely admit I've never put the time in to doing it as well. But, if you want to know what is really going on, and whether a given year is a good year or a bad year, you really need to understand the seasonal trend.
2. Once you account for seasonality, retail foot traffic peaks within 9 months of a store opening and then follows an exponential decay curve: N(t)=N_0e^(-xt). The bottom of the curve is set by a determining the minimum sustainable foot traffic for a given area - generally something you model off of the economic composition of the households in the area. That initial maxima is pretty clear - and the second that a small retail business hits it, it is extremely unlikely that they will ever come close to hitting it again. From experience, on the luxury side, a store has about a 6 or 7 year period before they reach the steady state at the bottom, with economic conditions, affluence, and product demand extending and contracting that timeline. I'd also note, that most businesses remodel every 7 years or so, not explicitly for this reason, but that rule of thumb fits pretty well in line with it. There are only two ways out of this trend in foot traffic: move your store to reach a new audience, or remodel and/or relaunch your store periodically. This is not the mom&pop 7 year market trend that I've likely referenced in the past on the green/blue, but is specifically for national and large regional players.
3. All the good spots are taken, so now the question for a retailer / mall trend to determine is whether they want to double down with a group of successful customers, or expand into lower potential customers. To put it another way: Is it more profitable to open up a 5th store in the New York suburbs, or are you better served by opening up something in Des Moines, Iowa? Now, it isn't just about opening up a store, you also have to have the supply chain to get goods to the store, so this is where you see East Coast and West Coast stores struggle to bridge middle America. "Red states" do have pockets of affluence, but it is hard to have a big enough pockets of affluence to accept the setup costs to expand warehousing and locations all at once. I mean - it is really really hard. Getting to Atlanta is no problem. Finding something that crosses Tennessee or Ohio is a retail nightmare. This is one of the reasons that Costco operates as 5 or 6 distinct regional companies and BJs has yet to make it westward.
4. Square footage of a store must be profitable/efficient - that means that every store in your chain carries your top SKUs. Only in bigger stores, or stores with sales above a certain threshold, can a chain afford to expand their selection. For this reason, you have stores that maintain heavy catalog sales have a higher degree of success - but, keep in mind - that also means that those stores train their loyal browsers to eventually shop in a catalog / online business format. The second that someone walks out your door to shop your store via catalog, you've also put them at risk for defection to Amazon.
5. Once you account for foot traffic to be continually declining, and your selection to be your highest turn items, stores are managed for profitability - not sales growth. Remember: Target and Walmart sell everything you want. Forever 21 is a niche market. And, with the rise of cheaper, distinctive textile manufacturing, Target and Walmart stopped selling boring clothes and have successfully launched their own private labels - as the Simpson's once said: Made For Kids, By Kids. Even if Target misses the mark on their fashion, they are big enough to make it flounder through - AND they can prop up a disaster with the other products in the store. Mall stores can't do that.
6. Store growth (adding locations), eventually breaks because of economies of scale. When you have one store, adding another store is 100% growth. When you have 1000 stores, adding 3% more stores (in sub-optimal locations) requires having the support staff to plan 30 store openings. If you are down around 200 stores, and tend to open 5 stores a year (2.5% growth), it becomes real hard to continually open 5 stores a year - especially considering that in 10 years, 5 store openings a year will be less than 2%...
7. Private equity has bought up a lot of retail and retail is only now figuring out the problematic realities of balance sheet economics. Ignoring the management of retail for profitability only, and the declination of expansion, now consider that the private equity firm effectively saddles the now private company with its own debt, effectively freeing up the liquidity of the private equity firm pretty quickly and leaving the company servicing their own debt. In the case of Toys R Us, the roosters came home to roost.
--
I can go on. But I need you to ask me specific questions if you want me to do so.
posted by Nanukthedog at 6:14 PM on November 11, 2018 [18 favorites]
Another vote for Company Man on Youtube. He does a staggering amount of research and presents the data in digestible chunks.
For retail decline specifically, he did two on Toys R Us, one way before and one immediately after the bankruptcy sales. He also did one on the history of Sears (which as I write this is in Chapter 11 Bankruptcy proceedings). I especially liked his analysis of the Crocs shoe brand, which I didn't even know had a large retail presence in the US because it's a near indestructible buy-once kinda product
The video on Gibson Guitars is a great deep dive into how a Brand can over mortgage it's name and in doing so harm brand quality.
posted by Faintdreams at 8:32 AM on November 12, 2018
For retail decline specifically, he did two on Toys R Us, one way before and one immediately after the bankruptcy sales. He also did one on the history of Sears (which as I write this is in Chapter 11 Bankruptcy proceedings). I especially liked his analysis of the Crocs shoe brand, which I didn't even know had a large retail presence in the US because it's a near indestructible buy-once kinda product
The video on Gibson Guitars is a great deep dive into how a Brand can over mortgage it's name and in doing so harm brand quality.
posted by Faintdreams at 8:32 AM on November 12, 2018
The Dead Mall Series of videos is a mix of dead/dying mall videography, architecture, local history and economic forces. It's a great series of non-academic cultural anthropology.
posted by JDC8 at 3:01 PM on November 14, 2018
posted by JDC8 at 3:01 PM on November 14, 2018
A couple other big things that I realized I left out.
8. Retail leases are long and complex. You need to plan for the demographics of a mall for usually about the 12 years that you've signed a lease for. Breaking a lease can be extremely challenging, so even if a location is doing bad, it may still be less costly to stay in it and open, rather than move or shut down. This is yet another reason you'll see stores like justice replace a lane Bryant or Ann Taylor - all 3 of those are part of the same retail parent company Ascenta...
In that manner a company can take a 7 year plan maximise revenue for a given store, and then change out their own banner without breaking their lease. Likewise, they can also double or triple up their banners in a given mall and spread their risk, even if the fundamental demographics of an area change. All of these brands function together like a private label superstore and their specials can be timed to maximize profitability (out of holiday, you can activate segments individually and rely on the familial relationships to minimize margin loss - ie overcharge at a different store).
9. Anchor stores, and certain key stores, provide a clear indicator of how successful your store will be. I've regressed specific anchor stores, demographic income of surrounding ZCTAs, 36 months of mall level shoppertrak traffic, rent per square foot, and the age of a mall as a *very* good predictor of store potential holding demographics mostly flat and using existing store sales performance as an input...
posted by Nanukthedog at 5:25 PM on November 14, 2018 [1 favorite]
8. Retail leases are long and complex. You need to plan for the demographics of a mall for usually about the 12 years that you've signed a lease for. Breaking a lease can be extremely challenging, so even if a location is doing bad, it may still be less costly to stay in it and open, rather than move or shut down. This is yet another reason you'll see stores like justice replace a lane Bryant or Ann Taylor - all 3 of those are part of the same retail parent company Ascenta...
In that manner a company can take a 7 year plan maximise revenue for a given store, and then change out their own banner without breaking their lease. Likewise, they can also double or triple up their banners in a given mall and spread their risk, even if the fundamental demographics of an area change. All of these brands function together like a private label superstore and their specials can be timed to maximize profitability (out of holiday, you can activate segments individually and rely on the familial relationships to minimize margin loss - ie overcharge at a different store).
9. Anchor stores, and certain key stores, provide a clear indicator of how successful your store will be. I've regressed specific anchor stores, demographic income of surrounding ZCTAs, 36 months of mall level shoppertrak traffic, rent per square foot, and the age of a mall as a *very* good predictor of store potential holding demographics mostly flat and using existing store sales performance as an input...
posted by Nanukthedog at 5:25 PM on November 14, 2018 [1 favorite]
From yesterday, a grim article at Citylab on the fiscal consequences for local governmental authorities.
posted by Glomar response at 6:17 AM on November 15, 2018
posted by Glomar response at 6:17 AM on November 15, 2018
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posted by XtineHutch at 9:25 AM on November 11, 2018