Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Yes, the internet has changed the way we shop. But taken together, other factors have caused greater harm to traditional retail stores say some economists.
It’s been a tough decade for brick-and-mortar retailers…and matters are only getting worse. Despite a strong consumer economy, physical retailers closed more than 9,000 stores in 2019…more than the total in 2018…which surpassed the record of 2017. 2020 might set a new record.
Some people call this “the retail apocalypse.” And it’s easy to blame e-commerce, which has thrived…but this can be overstated.
Online sales have grown tremendously in the last 20 years, rising from $5 billion per quarter to almost $155 billion per quarter. But internet shopping still only represents 11% of the entire retail sales total.
Furthermore, more than 70% of retail spending in the US is in categories that have had slow encroachment from the internet…either because of the nature of the product or because of laws or regulations that govern distribution. This includes spending on automobiles, gasoline, home improvement and garden supplies, drugs and pharmacy, food and drink.
Collectively, the following 3 major economic forces have had an even bigger impact on brick-and-mortar retail than the internet has:
We changed where we shop…away from smaller stores like those in malls and toward stand-alone “warehouse” stores. Over the 14 years through 2013, Amazon added $38 billion in sales while Costco added $50 billion and the Sam’s Club division of Walmart $32 billion. Amazon had the higher growth rate, but the bigger problem for most brick-and-mortar stores was other, larger brick-and-mortar stores.
Rising income inequality has left less of the nation’s money in the hands of the middle class, and the traditional retail stores that cater to them have suffered. Since 1970, the share of the nation’s income earned by families in the middle class has fallen from almost 66% to around 40%. That’s why retailers who aim at the ends of the income distribution…high-income people and lower-income people…have accounted for virtually all the revenue growth in retail.
Remember, high income people save a big chunk of their money. Lower and middle class folks tend to spend everything they make.
Services Instead of Things
With every passing decade, Americans have spent proportionately less of income on things and more on services. Stores, malls, and even the mightiest online merchants remain the great sellers of things. Since 1960, we went from spending 5% of our income on health to almost 18%. We spend more on education, entertainment, business services and all sorts of other products that aren’t sold in traditional retail stores.
Did you know in 1920 Americans spent 38% of their income on food and 17% on clothing…almost all of that was through traditional retail stores. Today, food accounts for 10% of spending and clothing just 2.4%.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com