Earlier this year, Amazon stunned Wall Street by delivering an earnings per share 60 percent higher than expected — $1.78 per share above the projected $1.11. Naturally, Amazon stock soared and in one day, Amazon surpassed Exxon-Mobil to become the fourth most valuable company on earth.
It was a banner week for Amazon, but the headlines stood in stark contrast to those coming from the brick-and-mortar world of retail. Days later, Macy’s CEO Terry Lundgren announced the planned closure of another 100 locations for the iconic department store chain over the next year. This move came amidst increasing pressure from Wall Street on publicly traded retailers to reduce their physical footprints as they simultaneously build their omnichannel capabilities to better compete online with the industry’s 400-pound gorilla: Amazon.
While these events may seem to paint a grim picture for retail, there are a few misconceptions in the marketplace that must be addressed. The first is the idea that retail, as a whole, is in contraction mode. This simply is not the case.
Most of the consolidation in 2016 has remained concentrated in just two retail categories: apparel and department store players. Those two categories include some of the world’s most well-known and iconic brands, and so this year’s closure announcements have dominated headlines. Yet, the impact of these closures has almost exclusively been felt at the nation’s malls (primarily its aging Class B and C enclosed regional malls) and lifestyle centers. These shopping center types only account for a small portion of the nation’s total shopping center space, the lion’s share of which is comprised of community/neighborhood centers that are typically anchored by a drugstore or grocery store.
In fact, so far this year, the total number of store closures announced by major chains stands at roughly 2,900 units. This compares to 3,300 units in 2011. Total store closures for last year stood at 2,100 units (this only includes major retail chains with at least 100 total locations) and so closures are clearly up. But they have yet to reach post-recession-era peaks.
This is not to say that the impact of e-commerce has been limited to just these two categories. The rise of streaming media has already decimated video rental and mass-market record stores as viable retail concepts (save for a few independent, niche players). The creation of e-books wreaked havoc on the bookstore category, accelerating the demise of Borders and resulting in the consolidation of Barnes & Noble. E-commerce has also been a major disruptor for consumer electronics, though the primary impact was felt a few years ago.
There is no doubt that e-commerce has been, and will continue to be, a disruptor, but it is critical that market participants continue to measure its impact on a category by category, if not an individual retailer basis.
Garrick Brown is vice president of retail research – Americas, for Cushman & Wakefield, and a member of a group of national research directors from major commercial real estate brokerage firms whose thought leadership is applied to NAIOP Research Foundation topics.