Retailing is undergoing a revolution. The rise of online commerce is shaking some of the retail industry’s biggest names, forcing many to retool their businesses for the digital age and killing off weaker members of the herd.
The US retail world is particularly challenged, given the vast overbuilding of stores and shopping malls in recent decades. Here are some charts that both on a micro and macro level show how retail is being reshaped by e-commerce.
First of all, these charts from Credit Suisse and the Institute for International Finance show how more shopping is done online, recently crossing the 10 per cent mark, and how department stores have suffered a particularly steep decline in their share of overall US commerce.
As a result, many big retailers are shuttering stores across the US. Sears, a venerable retailing chain that dates back to 1886, has announced plans to shutter more than 300 locations just this year. That will leave it with 1,150 stores, just over half the number five years ago. Credit Suisse recently estimated that as many as 8,640 stores with 147m sq ft of retailing space could close down in 2017 — which would surpass the level of closures after the financial crisis and dotcom bust.
This is beginning to bite so-called “real estate investment trusts”, or Reits, which buy up shopping malls and lease out space to big anchor retailers like Sears, and smaller ones that then set up around them. Footfalls at malls owned by several major Reits are dipping, according to mobile geolocation data collected by Thasos Group.
That is in turn crimping the number of shops. Here are some charts from Thinknum, another alternative data provider, that show how the total number of tenants of some major mall Reits are slipping.
This is likely to have a major impact on the US labour market. Retailers are important employers, especially of more vulnerable groups like the young, the old, the infirm or minorities. Here are some charts from the IIF showing the impact since 2013, underscoring how retail employment is contracting despite an overall robust jobs market and resilient retail sales.
The problem is that ecommerce is a lot less people-intensive than traditional retail. Though more jobs might be being created in warehouses and logistics — core areas for online retailers — that is probably not enough to counteract the decline in the number of cashiers, stockists and salespeople. The number of people needed to generate $1m of sales a year is much lower, and falling, for digital retailers than, say, department stores.
This can be seen on a company-by-company basis as well. Thinknum has scraped job listings on the websites of some big retailers, which seem to be in a downward trend this year.
It is important to note that retail as an industry is not going away, just being reshaped. Many traditional players are adapting to the new digital realities, and are beginning to reap the benefits from investments in their online operations. Here’s a chart from Quandl, another alternative data provider, showing the online sales of Walmart and Best Buy rising over the past few years, albeit from a low base.
Still, this hasn’t been enough to prevent investors from souring on the retail industry. Bespoke Investment Group has constructed a “Death by Amazon” index made up of companies most at risk from competition from Jeff Bezos’s online retailing juggernaut, and there has been a sharp divergence from the broader US stock market since 2015.
No wonder, then, that some hedge funds think that the US retail industry represents the next “ big short”.
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