All of us paying attention to what's going on with retail know that the industry is growing and improving. Contrary to the headlines, it's not in the midst of Amazon-induced death throes.
So after months and months of seeing "dead malls" and "Amazon" in the same headline, two articles published late last week were even MORE shocking:
"Retail's not dead, and physical stores still matter, Goldman says." In the article, Goldman Sachs analyst Matthew Fassler says, "The retailer of the future will likely be a retailer of the past -- just the most efficient version therein." He's right.
"There are more leaders than laggards in retail today, Moody's says." Christina Boni, a Moody's analyst, points out that "Distressed [retail] names are growing, but still a small part of our rated universe. The broader industry remains fundamentally healthy."
That's not to say that Amazon hasn't been disruptive. It has. It's a great company, and it has used digital technology to deliver a higher level of service and raise consumer expectations. Amazon is going to be a feature of the competitive landscape for a long time.
While some of used Amazon to explain everything that's wrong, leaders in the retail industry have used the disruption to improve.
The strong are getting stronger, and new players are entering the market. Those without the vision, will, or resources to stay in the game are disappearing.
The article highlights department stores and specialty apparel chains as "dragging the rest of the industry down."
Putting Department Stores in Context
For any of us interested in malls, the good news is that department stores don't matter as much as they did in the past.
As retail migrated out of downtown high streets to the suburbs decades ago, department stores were essential. Their promotional reach was second-to-none. They were mass-media juggernauts. Department stores bought a lot of ad space in the local papers to stay top-of-mind and to entice shoppers to malls.
On top of that, they had the best selection of merchandise at good prices. Departments stores generated shopping trips and the specialty stores in the mall fed off of the foot-traffic department stores created.
Fast forward to the 2010s: digital and social media have undermined the effectiveness of newspaper and other mass-media advertising. On top of that many department stores aren't selling what buyers want at competitive prices.
As a result, the paradigm has shifted. After decades of being the driving force in retail, department stores are just part of the broader competitive set. They aren't the preeminent traffic-drivers they once were.
To earn a shopper's business, much less her loyalty, retailers (including department stores) need to be expert with merchandising, consumer trends, staffing, training, customer service, store layout, purchasing, supply chain, marketing, digital media, promotion, inventory management, site selection, and finance. I'm sure I've left a few things off of the list. The demands on a retailer are intense and growing.
The best department stores still deliver on each of those expectations. Moreover, they have to because customers can spend their money, literally, anywhere else in the world. However, like specialty retailers, they have to evolve to compete, or they'll disappear.
Fake News: An "A-mall" Has to Have Department Stores
University Village in Seattle is an example of an A-mall without a traditional department store on site. Anyone thinking about creating the right combination of retailers for a shopping center should study this list. It's a masterpiece.
All the best specialty retail is there, including Apple, Tiffany, Amazon Books, Victoria's Secret, H&M, Sephora, and Anthropologie. The center also features a top lineup of home furnishings including RH Gallery (Restoration Hardware), Crate and Barrel, Room and Board, Pottery Barn and Willams Sonoma. Even digitally-native retailers like Bonobos, Warby Parker and b8ta are at the center.
The center's owners haven't "anchored" the property with department stores. To drive traffic, they've added restaurants like Joey, Eurkea, and Din Tai Fung (they kill it out of the worst retail location on the property). Rachel's Ginger Beer is a draw for anyone looking for a cocktail that comes with a local back story.
To generate daily visits QFC provides grocery shopping, Bartell's is the area's top drug store, Mud Bay fits that same bill among pet stores. Then there's UPS, three Starbucks locations, Bright Horizons Child Care, and Virginia Mason Medical Center.
On top of that, the owners created scarcity by leaving the roof off. That makes it the only major outdoor specialty retail center in the (often wet and sometimes cold and wet) region. For weather ranging from 'not horrible' to 'spectacular,' U-Village is a destination. The property also features exceptional landscaping, which adds to the appeal.
But most important of all, they've paid attention to parking. Set aside all the attention devoted to Uber, Lyft, and shared bikes: parking is still king. Moreover, ownership has made sure that each high-impact expansion of the retail roster is accompanied by more parking to accommodate the incremental visits. If it's inconvenient, people won't come. They'll find another way to spend their time than chicken-hawking parking aisles looking for a place to park.
As a result, almost any decent retailer can make it work with those dynamics. However, since it hasn't out-expanded market demand, U-Village has the luxury of picking from only the best retail concepts.
The Retail Industry Will Overcome Legacy Issues
So there are finally signs that facts are starting to overtake the headlines. Here are a few bullet points in summary:
- Leading retailers will thrive throughout this disruption.
- Technology that personalizes the experience is a priority. Retailers that aren't as in touch with their customers as Amazon is will lose customers to Amazon.
- Bad department stores are just bad retailers in big buildings. They aren't the industry's bell-cow.
- Great retailers and plenty of parking are what matters to shoppers. Those two ingredients haven't changed in 50 years ... even though the names have.
Investor Sentiment is Even Improving
Investors see opportunities, too. In another news story from last Friday, CNBC reported that "Wal-Mart shares just did something they haven't done since 1995". Wal-Mart's stock price increased for eleven consecutive sessions. Why? Mark Tepper, founder, and partner at Strategic Wealth Partners points out, " ... wouldn't it be great to own Amazon at 15 percent of its price?" He goes on to say, "They're gearing up to battle Amazon head-on. And whereas Amazon's price advantage in the past was very, strong, it's weakening."
The story also highlights that Oppenheimer & Co. analyst Rupesh Parikh said: "it feels as if the battles have only started between WMT and AMZN."
Game (still) on!
“Lead, follow or get out of the way.” — George S. Patton