It is 1982. The Home Shopping Club – later Home Shopping Network – pops up on cable TV across the U.S. A shudder runs down the spines of America’s retailers.
It is 1995. Two new internet companies, Amazon and eBay, introduce e-commerce to a broad swath of consumers. This is bound to sink in-person sales.
It is 1999. As the 20th century comes to a close, e-commerce now accounts for $150 billion in annual sales. Surely there will soon be tumbleweeds rolling across shopping malls everywhere.
It is 2017. Business-to-business e-commerce is so pervasive, that the initial “e” has become irrelevant. Meantime, retail e-commerce is growing 25% per year. Time to carve “Retail Stores” on a tombstone.
It is 2020. The world reacts to the covid-19 pandemic by shutting down all but the most essential retail outlets. Everything, it seems, can be delivered to your door, so why would you risk your health or even your life by letting some overly polite guy standing in a retail store aisle with a nametag on his uniform breathe on you?
And yet, somehow, brick-and-mortar shopping survives.
“Can I help you find something?”
“You might not know it from sky-is-falling prognosticators, but in-store retail continues to dominate online commerce,” writes Bobby Marhamat, CEO of Raydiant, which creates interactive in-store signage. “Digital sales are increasing—there’s no doubt about it. However, e-commerce only accounts for 14% of all sales, showing that brick-and-mortar retail is still [most] consumers’ preferred mode of shopping.”
He notes that almost half of consumers still prefer shopping in person, citing customer service, competitive prices and the in-store experience.
“In-store shopping experiences—feeling and trying on items, experiencing the sights and sounds of a store, even carrying a bag of newly-purchased items to the car—are simply too valuable to dismiss,” according to Marhamat. “That said, evolution remains essential. Consumer expectations change. Shoppers demand convenience. They demand an Instagram-able experience. Smart in-store experience management responds to ever-shifting tastes.”
In the short run, consumers have demanded protection from the coronavirus. While retailers are still trying to thread the politically fraught needs of mask and vaccine mandates, they have long since embraced contactless selling. They accept payment via phone app – brick-and-mortar retail downloads were up 27% in six months last year – and offer curbside pickup of merchandise.
Along with phone apps comes the kind of technological advantage that the rise of e-commerce has been hitting real-world stores with for decades. As customers’ preferences inform the artificial intelligence inside these apps, the stores are becoming increasingly sophisticated in how they curate merchandise for each individual consumer. This kind of customer intimacy drives loyalty and, thus, repeat visits to the self-checkout kiosk with tap-to-pay cards in hand.
“Just in time for next season”
“Brick-and-mortar retail is bouncing back,” according to real estate economist Calvin Schnure, noting that online sales’ pandemic gains are proving short-lived. “The e-commerce share has retreated over the past ten months … Rather than being the end of brick-and-mortar retail, the pandemic appears to have pulled forward the growth of online sales and store closures that might otherwise have occurred over the next year or two.”
Schnure expects in-store sales to continue surging as more people get vaccinated. But absent the effects of the pandemic, these revenues have been growing – certainly not as fast as online revenues, but still in a positive direction.
This online/brick-and-mortar shopping dichotomy might already be an outdated concept, though. With Amazon owning Whole Foods as well as some Amazon-branded retail outlets and every mall-based chain selling through its own app, the distinction is blurring.
Technology and consumer preferences are further driving the confluence.
“Retail stores of all sizes are turning part of their real estate footprint into logistics and fulfillment centers as they try to blend in-store shopping with e-commerce offerings,” writes Axios’s Kim Hart. “The trend is pushing brands to locate stores closer to dense population centers to try to reach consumers where they are and better cover the last-mile delivery zone to doorsteps. … Now that people are starting to venture out to stores again, retail brands have to cater to those who are now in the habit of shopping from home as well as those who prefer the in-store experience.”
She also notes that the “halo effect” —how the existence of a brick-and-mortar store boosts online sales for the brand – is contributing to the trend.
“Thank you! Come again!”
We started this article with a brief nod to recent history. Let’s end it by going farther back.
Bricks date back almost 10,000 years. The most ancient coins are no more than 3,000 years old. In the phrase “brick-and-mortar retail,” brick-and-mortar is by far the senior partner. It has survived plagues, famines, wars, the fall of empires, the Bronze Age Collapse and every other catastrophe that has been inflicted on humankind or which humankind inflicted on itself. It will outlast the coronavirus and Web 2.0.
As long as there are places to go, people will go to them. They will linger. They will spend money.
No matter how pervasive the rise of e-commerce and delivery services becomes, we remain social creatures. Brick-and-mortar retail will continue. Of course, that means it will have to adapt to the new normal – and the next one, and the next one.
What are the implications for you financially? Should you invest in individual retail stocks? High-end, low-end or specialty? Should you participate in real estate investment trusts which serve as the stores’ landlords? You may have exposure to these types of companies already in the funds and ETFs that you own. These are all fodder for a conversation with your trusted financial professional.
Gross domestic product grew at a 6.5% annual rate in the second quarter, slightly faster than in the first quarter, according to the first estimate released by the Bureau of Economic Analysis. A rise in personal consumption helped fuel the advance.
Initial jobless claims for the week ending July 31 came to 385,000, a 14,000 week-over-week decrease. The four-week moving average, though, was 394,000, a miniscule decrease of 250 from the previous week’s revised average.
Total nonfarm payroll employment rose by 943,000 in July, the Labor Department reports. The unemployment rate dropped dramatically – by half a percentage point – to 5.4% as the market for leisure and hospitality jobs came roaring back.
The Consumer Price Index for All Urban Consumers increased 0.5% in July on a seasonally adjusted basis after spiking 0.9% in June, the Labor Department reported. Over the last 12 months, the all-items index increased 5.4% before seasonal adjustment, due to surging shelter, food, energy and new vehicle inflation.
The S&P 500 posted a 2.4% gain in July, keeping pace with June’s rise. Despite that apparent steadiness, the CBOE VIX “fear gauge” also advanced, closing a steep 15.2% higher, ending the month at 18.24. As a rule of thumb, a VIX value below 20 suggests a stable outlook for financial markets.
In Europe, Amsterdam’s Euronext 100 rose 1.3% in July while London’s FTSE 100 and Frankfurt’s DAX were essentially flat. Asian stocks were broadly and steeply lower for the second month in a row, as Tokyo’s Nikkei 225, Shanghai’s SSE Composite and Hong Kong’s Hang Seng dropped 5.2%, 5.4% and 9.9%.
The Federal Reserve’s controversy du jour centers on the pace of tapering off its quantitative easing program. QE involves large-scale purchases of debt securities in order to keep the bond markets liquid and well-functioning during emergencies. A recent statement acknowledges that the US economy has made progress towards the Fed’s employment and inflation goals, suggesting that the emergency has passed and a period of tapering off is in the immediate future. The exact timing is still an open question, especially considering the unknowable effect of the coronavirus’s Delta variant. Fed Chair Jay Powell, though, suggested that the current surge is unlikely to affect the central bank’s longer-term strategy. Another debate looming is about which assets will be sold off first when tapering begins. There are many who believe that, while the Fed was well within its rights to buy $80 billion worth of Treasury securities, the unprecedented purchase of another $40 billion in mortgage-backed securities was problematic.
COMMODITIES AND CURRENCIES
Oil prices were slightly higher in July, with West Texas Intermediate crude gaining 0.7%, ending June at $73.95 per barrel. Meantime, inflation hedge gold reversed course and rose 2.3%, to end the month at $1,812.60 per ounce.
The dollar was down across the board for the second month in a row, dropping another 0.1% against the euro, 0.5% against the pound in June, and 1.3% against the yen.
Cryptocurrency rebounded, with Bitcoin rising 18.9%, to end July at $41,399.11.