Steve DelBianco, executive director, NetChoice
Online retailers have become a convenient scapegoat for brick-and-mortar stores looking to cast blame for the rapid contraction in retail jobs in recent months.
It’s become a such a common refrain in reports about job losses in the retail industry that it has almost become gospel.
But upon closer inspection, it’s clear that retailers have only themselves to blame for the bubble they created—a bubble that is finally bursting.
Like so many other bubbles, many retailers failed to heed the signs in the market and kept adding new and ever more unprofitable stores.
Take, for example Payless Shoe Source, which recently filed for bankruptcy and plans to close 400 stores. In 2014 and 2015 Payless experienced a sharp drop in per-store productivity, yet continued to open new stores, according to an analysis by the financial intelligence firm PrivCo.
The story is much the same at many other retailers—such as David’s Bridal, Bass Pro Shops, Nieman Marcus, and Forever 21, to name a few—who kept opening new stores even as sales in existing stores declined, according to PrivCo.
Some retailers have even acknowledged this problem. In March, Urban Outfitters CEO Richard Hayne told reporters, “The U.S. market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel. Retail square feet per capita in the United States is more than six times that of Europe or Japan. And this doesn’t count digital commerce. Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s. Thousands of new doors opened and rents soared.”
Hayne added, “This created a bubble, and like housing, that bubble has now burst. We are seeing the results: doors shuttering and rents retreating.”
Hayne is correct. On average, the U.S. has 46 square feet of retail space per capita—that is double the per capita square footage in the United Kingdom, more than three times the space in Canada, and seven times the space in Australia.
If the bubble wasn’t already apparent from the epidemic of overbuilding, retail industry employment hit a new high last year—surpassing levels not seen since before the 2007 Great Recession, according to the Bureau of Labor Statistics. Such unbridled growth was never going to be sustainable.
While it is painful to see so many job losses in the retail sector right now, this contraction is a natural consequence of retailers’ own bad bets on store expansion, not a sudden rush to online shopping.
Quite the opposite. Though brick-and-mortar retailers are being forced into a course correction, the sky is not falling. Consumers still report that they prefer shopping at a physical location over a virtual one, and, while online shopping grown in recent years, e-commerce still only represents 8 percent of retail sales in the United States.
In fact, 95 percent of all U.S. consumers shopped at a Walmart store and more than 80 percent at Target in 2016, while only 42 percent shopped at Amazon, according to data from marketing research firm NDP Group. Indeed, the data show that retail stores like Walgreens, Dollar Tree, CVS, and Home Depot outrank e-commerce sites by more than 25 percentage points as America’s favorite retailers.
That may be why so many online retailers are now moving into brick and mortar, and brick-and-mortar stores are creating more synergies with online retail acquisitions.
Vintage eyeglass retailer Warby Parker, which began online in 2010, recently announced its intention to open 25 new stores this year. Fans of the online men’s grooming brand Harry’s can now get their shaving gear at Target’s stores. Even Amazon has begun experimenting with its own brick-and-mortar book stores.
The bottom line is that retail is the American way and it’s here to stay. Businesses that survive this latest bout of store overbuilding will thrive—especially if they combine their physical stores with online offerings to deliver brick-and-click convenience, choice and value for American consumers.
Steve DelBianco is executive director of NetChoice, a trade association of e-commerce and online businesses.
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