Virgin on Business: The (Uncertain) Future of Retail

The implications of chain-store closings and shopping-mall failures will be far reaching.
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The big story in American retailing in 2017 is not Amazon, although Amazon figures in the tale.

This year, the lead headline is the demise of the American chain store.

Here’s a quick scan of companies that recently announced they’re closing stores, going out of business, filing bankruptcy petitions or all of the above: Sears. Macy’s. JCPenney. Kmart. The Limited. Payless Shoe Source. Office Depot. Abercrombie & Fitch. Aeropostale. Tailored Brands (parent of Jos. A. Bank and Men’s Wearhouse). HHGregg. Gander Mountain. Family Christian. RadioShack. Wet Seal. Rue21. Ascena Retail Group (parent of Ann Taylor and Lane Bryant).

Have we missed any? Very likely. Will we have more to add to the list before the year is done? Count on it.

Retailing churn is not a new story. The ranks of mainline and discount department store brands have been thinned over the years, as have those within specific segments such as consumer electronics. Some, most notably Sears and Kmart (owned by the same company), have been ailing for years. Small, independent retailers have long felt the squeeze from bigger chains. Then the bigger chains started feeling it from the online outfits. And there’s that little matter of a recession.

But the sheer size of the trend and the numbers generated — stores closed, jobs eliminated, investment dollars squandered, retail space left vacant — suggests this is a bigger deal than a seasonal or cyclical event. This has the look of permanence about it.

If it is the new long-term reality, this development has big implications for just about everybody involved. Those who make products will have to figure new ways of getting their merchandise to potential consumers (and to let them know of the products’ existence) if traditional channels are gone. Retailers will have to figure out if they can still operate with a reduced physical network and how bricks-and-mortar coexists with online. Workers, especially those seeking entry-level positions, will have to look elsewhere for jobs. Property owners will have to figure out how to fill empty space in existing buildings and what else they can develop on vacant parcels if retailing is no longer an option.

The aftershocks will spread even further, to media venues dependent on retailing advertising for revenue, and to government, which has been fed a steady diet of sales-tax revenue.

If the impact on this region appears muted, that’s because the economy here still has a lot of money sloshing around in it. While the layoff and closing numbers are impressive in the national aggregate, their potency tends to be diluted at the local level when a company closes just a few locations, many of them in smaller and outlying submarkets.

But, over time, the cumulative effects will take their toll on local retailing, which is already under stress from high operating costs and lease expenses. Take a gander at some of the storefronts and wonder how they’re moving enough merchandise to cover just the rent, let alone all the other costs of keeping the doors open.

Increasingly, they may not be able to, and the more astute — or nervous — property owners and managers are looking for alternatives for strip malls, enclosed malls and storefront retailing. Bring in different types of retailing, like grocery stores in malls? Sure. It’s being done already at Bellevue Square and Southcenter. Convert retail space to offices and residences? We’ll try that, too. Bulldoze the whole thing and start over? It’ll happen. Desperate times, etc. Hope this is a fad and this, too, shall pass, leading to a great retailing revival? That’s an option — if you have the cash reserves to tide you over to the happy day when shoppers return, and a lot of faith that they will. 

Monthly columnist BILL VIRGIN is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

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