“Amazon-proofing”–Something for Start-ups to Deal With
Good Sense News – Volume 3, Issue 1
If you’ve ventured into any well-established shopping centers recently, you may have noticed a gradual shift from retail storefronts to businesses geared more toward services or non-customer contact enterprises. It’s not unlikely, for example, to find enterprises like walk-in hospitals or urgent care centers, fitness centers, temporary office space, driver licensing services, or call centers housed in what previously were stores as we knew them in the not-too-distant past. Many analysts and industry-watchers suggest that this phenomenon appears to be a trend, and its impact is most severely felt in older shopping centers where under-performance (as measured in sales per square foot) is becoming a problem. Higher-quality, newer shopping mega malls haven’t seen as much of an impact, but analysts wonder about the future of these mega-malls as well.
So what’s driving this trend? Well, it appears to be a number of factors that are coalescing to produce a dim future for the traditional mall or shopping center on which middle America has depended for decades. After all, middle America relied on the one-trip shopping experience, where you only had to drive to one place to take care of your shopping list. Leading the pack in this steady decline is the dramatic growth in e-commerce, often referred to simply as on-line shopping. Projections published by the highly-regarded source Statista, suggest that e-commerce’s annual dollar volume will reach nearly a half trillion dollars by 2021, an increase of more than 60% from 2015 levels(1). In other words, “Cyber Monday” thinking seems to be progressively taking the place of “Black Friday” thinking when it comes to the heavy shopping periods.
But there are other factors that come into play, according to retail consulting and investment banking firm founder and CEO Howard Davidowitz(2). “If you look at what’s happening in America, where the country is, where the people are, the middle class has been decimated. The top group has never been richer by a tremendous multiple, and the middle class and low-end are getting destroyed,” says Davidowitz. “This is very complex, and tremendous numbers of malls are closing and will close because they simply won’t be viable, because the middle class in our country is dramatically less financially viable than they used to be.” He goes on to speculate that,”“The combination of e-commerce, what’s happening to the middle class and everything else is really bad news for the malls. It’s a tough business.”
Social engineering issues aside, real estate management firms and lenders are taking a look at new business startups, particularly those seeking to occupy space in upscale retail malls, in a different light these days. Often, one of the primary questions goes along the lines of “How Amazon-proofed is your business plan?” It’s certainly no secret that many of the big-box stores, like JCPenney , Sears, and Macy’s are seeing progressive volumes of sales lost to the Internet and e-commerce, and more specifically to the cloud-based behemoth called Amazon.com. As it grew to an all-purpose online internet-based retailer, Amazon has achieved recognition as the largest Internet-based retailer in the world, with a market capitalization that surpassed Walmart just two years ago, In the past five years, Amazon’s net retail sales have grown more than 200%, reaching $136 billion in 2016.
So, as the trend unfolds, there may likely be more gloomy days ahead for urban malls. In fact, a report just a few years ago by The Guardian(3) observed that, “Dying shopping malls are speckled across the United States, often in middle-class suburbs wrestling with socioeconomic shifts. Some, like Rolling Acres, have already succumbed. Estimates on the share that might close or be repurposed in coming decades range from 15 to 50%.” The advice to aspiring small business owners, then, is to be careful on site selection, and be careful to make certain your product offerings, pricing, and customer care procedures are geared to protecting you from the ravages of e-commerce.
(1) Source: Retail e-commerce sales in the United States from 2015 to 2021 (in billion U.S. dollars)
(3) Source: The death of the American mall
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