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The Retail Apocalypse Myth

The Retail Apocalypse Myth

Fear, Uncertainty, and Doubt (aka FUD), the infamous sales and marketing technique, has become even more common in our digital age. So, when retailers find themselves exposed to a barrage of scary information about the impending retail apocalypse, they should be wary – someone is definitely trying to sell them something.

The retail apocalypse myth dominates the industry narrative, spreading via sensationalist headlines about big-brand closures and bankruptcies, repeated assertions that all retail will ultimately move online, and the use of skewed statistics about retail spending trends. Let me reveal the real story behind the news.

Stores remain retail’s vanguard

Contrary to all the noise in the media about the demise of physical retail, according to recent research from IHL Group, North American retailers will open 12,663 stores and close 8,828 stores in 2018, a net increase of 3,835 store locations.

Indeed, some high-profile brands have closed their doors, but this only represents a handful of retailers and certainly not the entire market. Retail bankruptcies have been with us, well before the emergence of e-commerce. Remember Brash and McEwans? What about Go-Lo and Crazy Clarks?

The omni-channel trend actually works both ways. Just as physical retailers expand online, many pureplay businesses have opened brick and mortar stores with intriguing success stories.

The Hustle recently reported on how online apparel start-up Goodlife defied convention to achieve impressive growth. Founded in 2014, the e-tailer embraced brick and mortar early in its journey, starting with a five-location trial in 2016 and now set to be in all 125 Nordstrom department stores by the end of 2018. At the same time, their online store is pushing 400% YoY growth.

With all the hype around e-commerce, the brand and experience value of a physical retail presence often gets forgotten. In fact, when a retailer closes a store, online sales in its catchment area usually drop by 20%.

E-commerce can be overhyped

In the last several weeks, there have been numerous reports about online retailer Shoes of Prey’s decision to cease its operations. One reporter immediately drew the conclusion that “e-commerce retailers are not immune to the tough market”.

Contrary to the article’s premise, Shoes of Prey, like many other conceptually alluring start-ups, has never been subjected to market forces. It was a speculative venture based on easy access to capital, which was burnt with the hope that it would get traction with customers. However, it didn’t.

The idea failed because it made no money, which obviously was not sustainable in the long-term. The market had nothing to do with it. Unfortunately for investors, the concept was flawed.

The venture also had a direct negative impact on legitimate concerns. Real retailers suffered a loss as millions of dollars that would have otherwise been profitable sales went to Shoes of Prey, who effectively gave it away.

Regrettably, such stories are all too common, with the misguided investor frenzy being fed by the fictional universally-online future of retail, fuelled by the brick and mortar retail apocalypse storyline.

An innocent mistake or fearmongering conspiracy?

As the retail apocalypse storyline continues, I’ve identified a pattern in media reports on retail spending growth, to support the narrative.  I would like to give the mainstream media the benefit of the doubt here, but they appear to be working hard to dissuade me.

Take July 2018 as an example. Comparing sales to the previous month, a media story lamented “flat growth in retail”, suggesting that consumers have become wary about spending. A host of semi-rational reasons were provided, such as falling house prices and weak wages growth. The Australian dollar even dipped a fifth of a US cent in response to the disappointing data.

However, after turning to the ABS to find year-on-year figures (YoY), I discovered that retail spending actually grew approximately 3.5% against July 2017. Quite a different story; solid growth. Makes you wonder about the intent behind how the data gets manipulated and presented.

The power of physical retail

Refreshingly, the more I research the industry, the more evidence I see that traditional retail has fundamentally intrinsic strengths. Physical stores serve core human needs, forming the foundation to the creation and measurement of experience, community, and discovery.

E-commerce simply cannot produce a meaningful connection or provide a tactile experience. It can only augment the real experience. In some cases, it can also give people access to goods not available locally, like the good old-fashioned mail orders.

Philosopher and intellectual, Marshall McLuhan coined the phrase “the medium is the message”. In that vein, brick and mortar stores are becoming the media in retail, delivering a retailer’s authentic message via sheer presence alone.

Though a few product verticals such as DVDs will fully transition into digital, forget the hysteria – stores are here to stay. Just stick to the basics: remain frugal and have the right stock, at the right price, in the right location – if you do, you will do exceptionally well.

Remember that in 1910 the media prophesied that by 1920 all brick and mortar stores would be wiped out, because all shopping would migrate to mail orders. Like all prophets of the apocalypse, modern media has held the course, simply moving the date back every time the world has failed to end as promised.

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