The End of Retail As We Know It?

The mass closures of several retail outlets in the US, starting in the late 2000s and continuing to the present, known as the retail apocalypse, has been caused by the incessant changes in the way customers shop and poor decisions by corporate management to counter marketplace changes. Several well-known and established retailers including Sears, Toys “R” Us, and Circuit City were hit with declining sales due to a new, changing economy, leading to mass store closures, bankruptcies, liquidations of many former retail giants, and the downfall and death of many traditional shopping centers throughout the US. Since 2001, over 500,000 department store jobs have been lost, “18 times the number of jobs the coal industry lost in the same period” (Spross). Meanwhile, however, other retailers are adjusting to the changing retail landscape and thriving. The face of retail as we know it is changing.

A whole lotta nothing! — Sears Grand, Gurnee, IL

The ways customers shop have changed significantly over the past several years. The retail apocalypse does not affect every retailer, mostly those selling primarily apparel and home goods. After the economic crash a few years ago, apparel and home goods retailers have seen severe declines in sales, while many others, like entertainment, recreational activities, and food services, including restaurants, have seen booms (Holodny). Due to these changes in consumer shopping habits, Aneta Markowska from Societe Generale suggests that “the post-crisis consumer is more health-conscious and experience-seeking, favoring services over goods” (Holodny). Throughout the US, traditional mall operators, such as Brookfield Property Partners (formerly General Growth Properties), look to smaller stores, entertainment, and recreational retailers to replace traditional department stores, namely Sears, JCPenney, and Macy’s. The Woodfield Mall in Schaumburg, Illinois replaced a portion of the Sears Distribution Warehouse with a Pac-Man themed restaurant, Level 257. Oak Brook Center in Oak Brook, Illinois, has replaced the former Bloomingdale’s with several smaller retailers, the lower level of the Neiman Marcus with two restaurants, and is currently redeveloping another area of the mall with new restaurants and a theater (Zumbach).

Many people believe the primary reason for the retail apocalypse is the rise of e-commerce, specifically retail giant, Amazon (Ritholtz). Amazon and other e-commerce businesses are eating up the competition to some extent. Since 2010, e-commerce sales have increased every quarter of every year, hitting 4.2% of total retail sales at the beginning of the decade (Statista DMO). In quarter 3 of 2018, $504 billion was spent on online shopping, making up 9.8% of total retail sales (Go; US Department of Commerce). While e-commerce isn’t as large of an impact as many are led to believe, this is a staggering market share percentage that continually increases year-over-year. Despite the rise of e-commerce, Amazon trails behind Walmart and Kroger, the two largest US retailers (Kantar Consulting).

The Carson’s Is Dangerous! — Carson’s, Vernon Hills, IL

In addition to changes in the ways customers shop, many business leaders in the retail industry are unable to cope with changes in the marketplace and rely on debt for a lifeline (Townsend, et al.). In the past few decades, several investment firms have purchased controlling shares of companies using loans and other forms of debt (Dayen). Because of this, as companies lose market share, they are often forced to close underperforming locations or, in more serious situations, file for bankruptcy or liquidate.

As an example, Sears Holdings Corporation, the previous owner of brands such as Sears and Kmart, filed for Chapter 11 bankruptcy on October 15, 2018, intending to continue operations. The company had $134 million in debt due on that day, which the publicly traded company was unable to pay (WYCO Researcher). Through the filing, the company closed 222 stores and currently operates 425 non-liquidating locations, as of Q1 2019 (ESL Investments, Inc.; Jones, Charisse, and Nathan Bomey). Edward Lampert, CEO of ESL Investments, owner of Sears and Kmart, said the company intends to find “new ways to innovate and grow to adapt to the forces transforming the retail industry” (ESL Investments, Inc.).

Toys “R” Us, once a category killer in the toy industry, was less fortunate than Sears Holdings. The company filed for bankruptcy in 2017 and liquidated all US stores on June 29, 2018, after years of faltering sales and decline (Hirsch). In 1996, Toys “R” Us was overtaken by Walmart as the largest toy retailer, yet Toys “R” Us did very little to bolster its financial situation. By the mid-2000s, Babies “R” Us was the company’s most profitable venture (Hartung). Toys “R” Us, along with Babies “R” Us, was acquired in 2005 by Bain Capital LP, KKR & Co, and Vornado Realty Trust. Over the years, Toys “R” Us was forced to take out more loans as sales continued to plummet. In 2012, the company reported its profits fell 75 percent. In 2015, the flagship edifice on Times Square in New York City closed, after being unprofitable since its opening in 2001 (Verdon). On March 9, 2018, Toys “R” Us announced it would cease US operations. Just one day before liquidation sales began, the founder, Charles Lazarus died of respiratory failure at the age of 94 (Corkery).

Kmart Corporation hired Charles Conaway as the CEO in 2000. His primary goal was to “bolster [the Kmart] brand so that the firm could better compete with Walmart, a company that was founded over 60 years after Kmart.” Under his watch, the company filed for bankruptcy in 2002 and Conaway was chastised for misleading investors and spending the company’s money on personal expenses (24/7 Wall St). In 2003, Kmart emerged from bankruptcy after an acquisition by ESL Investments. Edward Lampert, founder of ESL Investments, is credited for returning Kmart to profitability and saving the brand. In late 2004, under the leadership of Lampert, the company announced it would purchase Sears for $11 billion. By the late 2000s, however, the company was faltering and closed several stores each year until finally filing for bankruptcy in October 2018. Nine creditors, including mall operators Simon Property Group and Brixmor Operating Partnership, had extreme rancor towards Edward Lampert for engaging “in serial asset stripping” and that the “bid to ‘save the company’ is nothing but the final fulfillment of a years-long scheme to deprive Sears and its creditors of assets and its employees of jobs while lining Lampert’s and ESL’s own pockets” (Bomey; D’Innocenzio; Young).

This Sears is operating normally. — Sears, Schaumburg, IL

One company that reinvented itself during the retail apocalypse is Best Buy. Once expected to go the way of retailers like Circuit City and CompUSA, Best Buy completed a turnaround plan that “is one of the most impressive in the history of retail,” according to Timothy Green of The Motley Fool (Green). Best Buy comparable store sales and online sales have continued to soar. For Q3 2018, comparable store sales increased by 4.3% (“Best Buy Reports”). CEO Hubert Joly, who joined in 2012, is often credited with saving the retailer (“Best Buy names;” “How Best Buy”). Best Buy was able to compete with leading retailers like Amazon and Walmart by establishing a Price Match Guarantee program, where the company says they “won’t be beat on price. [Best Buy will] match the product prices of key online and local competitors” (“Price Match”). Previously, Best Buy did not offer competitive pricing, which led to its stores serving as showrooms for online and discount retailers. To further circumvent the downfall of the retailer, Best Buy also cut several jobs and “by the end of 2014, Joly had removed a little over $1 billion in costs,” yet increased customer service to improve the customer experience in-store, a service unavailable or limited when shopping online (Green). To improve sales and cut costs, the company closed several underperforming locations, including nearby locations in Mundelein and Niles. These processes were all part of the successful Renew Blue campaign (Grill-Goodman). Motley Fool Analyst Vincent Shen compared the success of Best Buy to the decline of Sears. Over the past several years, Sears and Kmart have “been aggressively cost cutting. But, if you cost-cut and don’t add or change the experience, maybe you can shrink your way to some level of profitability.” When Best Buy cut costs, “they also did things like bring in Apple, Microsoft, [and] Samsung store-within-a-store concepts” (“How Best Buy”). By 2019, Best Buy consistently reports positive financial results, recently opened a new location in January in Visalia, California, and is even ranked the #1 most sustainable company in the US for 2019 (Norton; Yeager).

Since the late 2000s, the retail apocalypse has affected many retailers throughout the US. Changes in consumer behavior and the inability of some corporate management to cope with these changes have led to mass closures of several retail outlets and the decline of traditional shopping centers. With continued declining sales in industries, such as apparel, home goods, and furnishings, the worst of the retail apocalypse may be yet to come. However, with clear customer focus and adaptable management, some retailers can continue to thrive.

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