Death By Amazon Has Been Greatly Exaggerated
All across America, malls lay abandoned in the suburban sprawl, vast square footage gathering dust and enormous empty parking lots decaying. What many first saw as a slump has gradually eaten away at even healthy parts of the retail industry. The first half of 2017 saw as many big bankruptcies as all of 2016, with 9 stores such as Payless Shoes and Sports Authority announcing liquidation and traditional department chains JC Penney and Sears closing struggling locations in multiple states.
Even trendy clothing outlets Urban Outfitters and Lululemon have seen stagnate growth and dwindling profits. And while a slow in retail spending over the past decade explains some of the sluggish numbers, the economy is still remarkably strong, with low unemployment, and positive wage growth for the last 18 months.
So what’s causing this mass exodus from malls and outlets all across America?
Many would like to lay the blame squarely on the vast reach of Amazon. Jeff Bezos and his relentless quest for the ultimate customer experience is driving business online, away from America’s plethora of malls and into a digital marketplace in which most retail giants are ill-equipped to compete. Amazon dominates the online retail space, with nearly 64% of American households holding Prime memberships.
What’s not to love about being able to satisfy every consumer whim in 2–3 days with bargain basement prices that undercut local competition? Except if you’re a brick and mortar retailer that is.
The BeSpoke Investment Group has something called the “Death by Amazon Index,” in which they track 54 stocks made most vulnerable by the rise of Bezos’s digital behemoth. It’s not a pretty picture for the future of traditional retail. Over 14 of the stocks in the index have fallen 40% or more in the last few months.
The recent 13.7 billion acquisition of Whole Foods was the talk of the town last quarter, causing industry experts in grocery to throw up their hands in defeat. It seemed Amazon was setting the stage to decimate the grocery space in the same way it had leveled other areas of retail. But many analysts are pumping the brakes on this theory, insisting there are several factors that have contributed to the fall of retail. And if the industry can learn from those mistakes and adapt, there’s no reason the brick and mortar model has to be a doomsday scenario.
Traditional Retail Is Dead. And That’s Okay.
We buy more stuff online now. And we like it that way. This is a fact. E-commerce has risen steadily in the last decade, but it still only makes up about 11% of consumer spending. Mobile shopping is easier than it used to be, with a crowd of options that allow us to virtually window-shop. And while previously we reserved buying big ticket items to showroom floors, more and more consumers are doing initial research online. This trend means less incidental spending as customers browse stores, picking up smaller items along the way.
Despite changing spending patterns, some things will always be attractive. There’s no replacement for the feel of the fabric or the exact curve of a well-designed piece of furniture. We’ll still want to touch and sit and imagine how that sofa would look in our living room. But our shopping is becoming more targeted instead of casual, and influenced not by splashy ad campaigns and in store displays but by a more personal connection.
Beyond changing shopping patterns, a second factor is driving the inevitable death of traditional retail: we built too many malls. Just WAY too many. Between 1970 and 2015, America built malls twice as fast as the population grew, creating enormous swathes of shopping space that amounted to 40% more square footage than Canada and five times as much as the UK. Visits to malls dipped during the recession and they never really bounced back.
Let’s be frank. Those shoppers just aren’t coming back.
And that brings us to the third factor in traditional retail’s cause of death. Despite insistence that subsequent generations have grown increasingly greedy and materialistic, that’s just not the case. Americans spend 20% less on clothing than we did in the 1980s and 1990s. Consumer spending has undergone a revolution of sorts, shifting almost entirely from coveting things to coveting experiences.
We’re content to own less, but we want to do more.
Experts have referred to this phenomena as a travel and restaurant renaissance and those industries are booming, growing twice as fast as retail since 2005. For the first time ever in 2016, Americans spent more money on dining out in restaurants and bars then they spent in grocery stores. Some of this spending is driven by social media, where the selfie reigns king. Perfectly poised foodie photos or jaw-droppingly scenic Instagram accounts blast travel envy from every corner of the globe.
Consumers now live a greater portion of their lives online, crafting experiences to create an image of a perfect life. And more and more we look to social media for inspiration, where influencers drive the conversation about what to covet.
The Rise Of The Micro Influencer
While we’ve developed a suspicion of advertising and marketing, 90% of consumers reporting trusting online recommendations from real customers. Amazon has specifically proved the power of this tool, with robust reviews that heavily influence sales. And this approach lights the way forward for struggling brands. While traditional retail is on its deathbed, the future of spending lies with companies willing to adapt to our changing world and place their fate in the hands of micro-influencers.
Many have cited the success of micro-influencers in recent years as an indication of where retail is headed. Micro-influencers are exactly what they sound like — a community of like-minded people who have expertise in a certain area and have developed a small, devout following. These influencers are not celebrities, nor do they have mammoth social media followings, but their ability to connect and reach a specific demographic is unparalleled.
Brands have begun contracting with micro-influencers to bring their products to an engaged, passionate base. These relationships work best when the product closely aligns with what an influencer’s area of expertise and is something the influencer can not only test, but wholeheartedly endorse.
And then they just step back and watch the magic happen.
Experticity has built their company on this model and exemplified that the best way forward for struggling brands is to connect with passionate influencers. Whether it’s a cast-iron skillet in the kitchen or the durability of new trail runners, consumers respond best to relatable experts whose knowledge, experience and passion enable them to provide helpful guidance and honest feedback both in face-to-face interactions and on social media.
“In today’s consumer world trust is waning and choices are endless, consumers don’t have a ‘where to buy’ problem, they have a ‘what to buy’ problem,” said Tom Stockham, CEO of Experticity. “When consumers move to active purchasing mode, they move away from brand led advertising to seek their own independent opinions on what to buy, staying in investigation mode often right up to the point of purchase. Brands and retailers who understand this and engage with the advocates who are already asked for advice on what to buy every day, will be the ones who continue to thrive.”
There’s ample proof that connecting customers to experiences and creating community is the secret sauce to retail success. Take REI for example. In the same year that Sports Authority filed for bankruptcy, this outdoor retailer reported record sales, rising nearly 7%. The key to REI’s profitability? They’ve focused on experience, working with mirco-influencers to create campaigns and a sense of community. And unlike other sports retailers, REI specializes in selling niche brands like Kelty, Black Diamond, and Garmin. They’ve learned to successfully market to people who want to own less and do more.
Some overextended retail chains will simply be left to rot in American suburbia, where shopping malls are already suffering a slow death. And even though brick and mortar stores may face hard times ahead, brands and retailers who can adapt and find a way to connect to consumers online will survive. And perhaps even flourish in a community that appreciates the art of the selfie and a well-crafted social media campaign.