The Demise of Traditional Retail Companies

There is definitely something changing in the retail industry. We have recently read the news about the bankruptcy of Sears Holdings (the parent company of Sears and Kmart) and Toys R Us. These few-decades old companies were once the top players of their respective industries but they are now closing stores one by one. At Sears Holding’s peak in 2005, the date when Sears and Kmart merged, Sears Holdings had more than 3,500 stores and 350,000 workers in the United States. Today, this number is around a few hundreds and is decreasing continually. The downfall isn’t mostly the result of the mismanagement of the executive team, but in fact it a result of changing dynamics in the retail space. 

Up until a few years ago, shopping malls were the ultimate consumer and leisure destination. These malls would be located in a short drive outside the city and would include a couple of giant department stores, discount stores, as well as fast food chains and other stores. Within the mall visit, the typical American family would buy their clothing needs from Sears and Macy’s, get a movie CD from Blockbuster, grab books from Barnes & Noble, and buy toys for the kids from Toys R Us. The common thing about these stores are they have either gone extinct or are going to be soon. Companies are doing everything they can from closing stores: cutting employees, restructuring billions of dollars of debt, in addition to selling assets to save some time but the end seems inevitable. 

Mall culture is dying, people now have the luxury to shop from their couches through a few clicks on the internet. The demise of major department stores has caused many low-tier malls that can’t find replacements for the departed large stores to be left abandoned. At its prime time, the main customers of malls and these department stores were the middle-aged group from the middle-income class. As this group aged, the new generation became more tech savvy and stopped going to these places. Generations X to Z were more familiar with items in the stores, and most importantly they didn’t value concepts like location, store name, and friendly interactions with staff as much as their predecessors did. For them low prices trumped all. Why drive up to a mall and look through dozens of stores for a few hours, when you can just scroll through an online shop to see all the models and purchase what you want - with no additional added shipping cost most of the time? 

Discount stores such as T.J.Maxx, online retailers such as Amazon, and the traditional retail giants such as Target and Walmart had the advantage to compete on price because they could absorb losses on specific products while making it up in other areas.  As Amazon expanded from selling only books to selling literally everything, its more brick & mortar focused peers Walmart and Target have followed by expanding their online presence. The concept of online shopping was very appealing to the consumer, and it became an important channel for retailers to sell their products. The traditional retailers have been cumbersome to change and anticipating the new trends, this has resulted in the demise of few decade old companies that were not so long ago the go-to spots for all our needs.  

Another major problem of this change is joblessness. Besides closed stores and less crowded offices of the bankrupt retailers, cashier-less stores are also posing a big threat to employment. In an online world where access to information is almost costless and super easy, what is the need for a skilled salesperson to inform the customer about the product? Amazon has already started testing its Amazon Go stores which doesn’t have any cashiers and you check out through your mobile phone. This could be a threat to the United States’ second largest employment group’s future. Although it may be in the decline for the last couple years, physical retail will never be dead. Some people still prefer to physically buy a product by touching and feeling at a brick & mortar store with a human-to-human experience. Companies have also acknowledged the fact that physical retail presence is required as Amazon has launched its first physical store in New York this year. It may seem good news for competitors that major players in their industry are shutting down with their market share available for grabs, but it is uncertain who will keep operating successfully in the near future. 

Recent news should be a wakeup call for other retailers; they should start recognizing what’s going on in the industry and adjusting their outdated strategies accordingly: better eCommerce operations, understanding new trends, and focusing on customer experience at physical locations in order to compete against online platforms like Amazon. If the current failing retail stores do not start reinventing some things quickly, it is inevitable that they apply for a Chapter 11 Bankruptcy filing in the near future. In this competitive and evolving landscape of retail, only the fittest can survive.