What Can Police Academy 7 Tell Us About 2017 Retail?
In 2007, Netflix famously flipped the switch and launched a “Watch Now” option, initially streaming programming of 1000 titles via broadband. The first offerings included classics (Ben Hur), camp (Beyond the Valley of the Dolls), and cringe-worthy (Police Academy 7).
Initially a bonus for their DVD-by-mail subscribers, we now know it was the first step in a seismic shift in the way consumers could access media content. Even Netflix CEO Reed Hastings was cautious at the time: “The market is microscopic. DVD is going to be a very big market for a very long time.”
As more consumers opted for streaming services, movie theater companies were understandably nervous. While they had already weathered other technologies (cable television, VCR, DVD) this was something altogether different, wasn’t it? Could it be the beginning of the end for the 5928 movie theaters then standing in the U.S.? Far from it.
Even as Netflix streaming subscribers have risen steadily, the movie theater industry has held its own. Total box office revenue in North America has actually increased 17.8% since 2007 even as the number of movie tickets sold has fallen by 6%. Meanwhile, the number of movie theaters in operation has declined by just 1.8% while the number of screens has risen by 3.5%. What’s going on and what does this have to do with retail shopping?
My point is that despite a convenient and high-quality delivery platform, consumers in Des Moines and Dallas are streaming content *and* going out to the movies. They take the family out to see Finding Dory, they stay in to binge watch House of Cards, and for some reason they stream cringe-worthy films like Police Academy 7. Consumers have simply made room in their habits for both practices, and I predict the same pattern will be true for another online and off-line habit: shopping.
We have all observed and participated in the rapid rise of e-commerce, even if it now accounts for only 8% of sales (a bit higher if you back out fuel, cars and restaurants). But the gains made by Amazon and hundreds of other e-commerce sites have been all-too-easily viewed as a brick and mortar killer. It’s more complicated than that despite headlines and articles to the contrary.
Two points here: the problems faced by department stores like Macy’s, JC Penney and even Neiman Marcus have only slightly to do with loss of sales to competing online players (their problems have been analyzed week after week by worthy reports); and secondly, department stores make up only a small fraction of retail sales in the U.S. (less than 2% according to some sources).
Setting aside the department store segment crisis, if we shift our attention to broader retail shopping habits, what we find is that people still walk into stores every day, and they report that they prefer it to online in some cases. In fact, a recent PwC survey shows that the routine of shopping hasn’t changed much at all: for five consecutive years, around 40% of global shoppers visit a store at least once a week. Perhaps that’s why Amazon and other online pure players are beginning to open physical stores.
Here’s the bottom line: the availability to stream Police Academy 7 and tens of thousands of other films and programs didn’t kill the movie theaters it just recalibrated delivery and consumption patterns. And the ability to order a sweater, candle, or toothpaste online probably won’t be the reason your favorite large store or small shop closes. More on that later…