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News & Views

The ‘retail apocalypse’ is just a myth

The continued closure of retail spaces, including outlets from giants like Macy’s, Sears, and Barnes & Noble, has got industry commentators speculating that the “retail bubble” is about to well and truly burst.

“Competition is tougher than ever,” writes Mark Mathews at the National Retail Federation. “Foreign retailers are steadily increasing their presence in the United States, innovative new business models are being developed to appeal to the modern consumer and small businesses and startups can compete in niche markets in ways that would have been impossible just a decade ago. The challenges brought by technological innovation are impacting businesses across a range of industries — and when big companies start to struggle, people take notice.”

It’s estimated that 4,000 bricks and mortar stores have closed in the US over the last year, prompting some to warn that the “retail apocalypse” is nigh. And research published in April by Credit Suisse predicted that more physical stores will close this year than during the lowest ebb of the financial crisis in 2008.

“The US market is oversaturated with retail space, and far too much of that space is occupied by stores selling apparel,” Richard Hayne, CEO of Urban Outfitters, said in an earnings call with analysts back in March. “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s. Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst. We are seeing the results, doors shuttering and rents retreating. This trend will continue for the foreseeable future, and may even accelerate.”

But, while plenty of physical outlets are closing, 2016 also saw retail rents at their highest since 2008 — not to mention over 86 million square feet in new retail construction in the US alone. So is retail really dying, or is it more likely that companies operating under yesterday’s business models are being left behind?

“It could be argued that many of the floundering retail chains failed to invest in people — both employees and customers — and the technology needed to serve those people,” writes Armando Roggio at Practical Ecommerce. “The retail chains that are suffering, going bankrupt, and closing stores are a symptom of poor management and a lack of investment more than they are an indication of the retail industry’s health.”

For companies investing in technology and customer intelligence, physical stores still very much have their place. Even online-first companies like Amazon and Warby Parker are recognising the value in physical locations and venturing offline. Amazon recently opened its first cashless grocery store in Seattle and a flagship bookshop in New York City, both experiments in combining the perks of their Prime membership with the familiarity of physical browsing.

With a growing proportion of consumers preferring to research products online before making a purchase, retailers who provide a seamless online-to-offline experience, and whose digital and physical shopfronts embody the same brand values and quality of service, will be the ones best equipped to survive.

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