Blame Amazon!

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Beaujeb Blame Amazon! That’s not a new approach. William Shakespeare wrote it in Julius Caesar, Act I, Scene III, L. 140-141: “The fault, dear Brutus, is not in our stars / But in ourselves, that we are underlings.” [With apologies to genuine literary critics, all of whom should disagree with our misappropriation of the Roman nobleman, Cassius’s intent in his choice of those words.]

We have a hypothesis about gasoline stations. Our thinking has long been that no one wants to go to them; they go because, if they don’t, they can’t do what they really want to do – drive a car. Even if we are wrong when it comes to everyone else in the world, we know that’s how we feel. So, the number one reason we have for wanting an electric car is that we won’t be spending time getting gas. “Refueling” a car (with electricity) at home while we sleep seems pretty appealing.

Retail stores aren’t very different. If the only reason customers come to your shopping center is because they “have to,” then anything that comes along that will eliminate the trip will replace that trip.

Stores are closing; entire chains are closing; hundreds of thousands of former retail workers are at home watching television. And the fault, as we are told, is “Amazon” and the likes of Amazon. Amazon, however, grabs only about 5% of non-food retail sales and on-line sales represent about a 10% share of all retail sales. Despite that dramatic increase in on-line sales from when Dwight D. Eisenhower was President, brick and mortar store sales are still growing by a little more than 2% on a year-to-year basis.

Despite growing on-line sales, the existence of (admittedly) slowly growing store sales leads us to believe that, at least for the near-term, there really is business out there. Yet, it is undeniable that something is wrong. The brick and mortar machine has been making “that funny sound” for much too long and if what’s wrong isn’t fixed, it will break. Mind you, there is no reason to expect (demand) that future societies do business in the same way we now engage in commerce. Our distant ancestors did not shop in stores. They “grew their own.” Perhaps they traded with neighbors. Barter was their currency. Were those the “good old days” the retail industry pines for? We don’t think so. The world is changing. It always has; it always will. Unless any of us knows how to change the world, what we need to do is to change the way we do our businesses to keep up with the world.

Is it all doom and gloom? We don’t think so. In the midst of all of this doom and gloom we read about (and see for ourselves) that some shopping centers are expanding and some are even doing so dramatically. We see new retail concepts. We see chain expansions.

What’s going on? We don’t know. We have some “feelings,” but they are no more valid than those of any of our  readers. Notwithstanding our acknowledged shortcoming, we feel obliged to give this topic the old Ruminations college try, but only with the goal of sparking some re-thinking within the Ruminations community of readers.

If we were to sum it up – it would be that we have forgotten that shoppers want a good “experience.” They want clean stores. They want helpful advice. They want convenient parking. They want visual interest.

Why do people go out to eat when they can cook at home, buy ready-to-heat meals or “order-in.” The dining-out business is growing. In 1955, the restaurant industry comprised 25% of the family food dollar. In 2016, that number rose to 47%. Total restaurant industry sales even grew 5% from 2015 to 2016, with $746 billion spent in 2015 compared to $783 billion in 2016.

Is it because of convenience? Certainly. But, we think the real reason is for the dining-out experience. What are your personal reasons for eating-out? Why do you think others eat-out?

Almost all pundits predicted the end of the retail bookstore. Bookstore business isn’t in a growth mode, but it hasn’t collapsed (as has the market for 45 rpm records, DVDs, tapes, and records). Yes, on-line marketer Amazon (and others) have grabbed a big share of the market, with Amazon alone taking more than 22% of the book business in 2016. But, overall book and book-like sales have boomed in recent years. In fact, on-line retailers have served to increase the market by reason of the convenience they offer.

More notably, however, it may not be the on-line retailer that has caused the bookstore dilemma. What content streaming has done to CD recording sales, e-books are doing to ink and paper. It’s easy to blame Amazon, but perhaps it’s the product itself that has changed.

Yet, some bookstores are thriving. Why? We posit: it’s the “experience.” Specialization. Coffee bars. Author talks. Book clubs. All of those things (and more) give customers a reason, indeed a desire, to hoof it to the store.

So, are some retailers thriving? Yes. Motley Fool would tell you to look at Costco, Dollar General, Wal-Mart, Nordstrom, Best Buy, T.J. Maxx, and Marshalls. Fox News would tell you: Starbucks, Ulta Beauty, and Home Depot. We don’t know; we only know what we read in the business press.

About 10 days ago, The New York Times wrote about Sears Holdings (Sears and K-Mart). If you missed it, don’t. It can be seen by clicking: HERE. According to the Times article, Sears, once an innovator, seems to have lost touch with the retail consumer. Brick-and-mortar stores need constant face-lifts and upkeep, yet Sears is accused of failing to do so. Anecdotes do not proof make, but we’ll share the following one with you (from the article):

On Black Friday one year, Kmart heavily promoted a particular television to drive traffic into its store. The Lancaster, Pennsylvania Kmart was given only one to sell.

The store, however, did receive plenty of items from the body-conscious clothing line of hip-hop star Nicki Minaj. “It didn’t sell well,” [a store manager] said. “I mean, our store was located in the middle of one of the largest Mennonite populations in the country.”

Landlords do not escape blame. What is a shopping center and what is its function? In a word, one commonly used – symbiosis – shopping centers are there to create symbiotic relationships. Symbiosis works to create a shopping community where the whole is greater than the sum of the parts. In the simplest terms, when a shopping center “clicks,” customers come not just to buy a designated item, but to “shop” – to spend time devoted to an experience.

Perhaps there was a time when a mere assemblage of merchants was enough to get people out of their houses. No more! At one time, we all believed that landlords were talented enough to achieve a magic “market mix,” one that would attract shoppers like the north pole of a magnet attracts the south pole (or is it the other way around?). Today, there are those who believe that landlords solely seek to maximize their average square foot rental. On its face, there’s nothing wrong with “maximization.” That is, so long as one factors in vacancies. Perhaps landlords might consider leasing to tenants who lack the gross margins that permit rents amounting to 15% or more of their sales. What kind of tenants might those be – perhaps, the ones who inject some jazz into a property – ones that bring shoppers more prone to buy on-line?

Our thinking is that just having a lot of stores sharing a common area no longer makes for a “destination.” Retailers and their landlords need to rethink “how” to create a space where people WANT to come, not just need to come when they can’t avoid it.

Entertainment and food have their limits. At some point, cannibalization takes over. Cleanliness and convenience are never out of style. Parking layouts can’t be an afterthought. Let’s try shopping at our own properties. Is it a rewarding experience? If not, why not?

Nonetheless, there are limits to what a landlord can achieve.  Landlords provide the frame but tenants must provide the art. Certainly, managing expenses is critical for a retailer’s success. But keep the following parable in mind.

A well-regarded symphonic orchestra used a complement of 90 musicians to play Beethoven’s 5th Symphony. It sounded great. Really great. But, it was falling on hard times. So, it engaged a consultant for advice. Since this was a “business” problem, the “chosen” consultant came from an accounting firm. His advice came quickly and was firmly delivered. The orchestra employed 32 violins (16 and 16, for those who know and understand what that means). The advice: eliminate one violin: who will hear the difference. Voilà, he was right. No one could.

Business didn’t improve, so another violinist got a pink slip. No one could tell the difference. Over and over, the same thing. Then, when one violin remained and the hall was empty, someone noticed – the bankruptcy trustee. Along the way, the music “experience” was lost.

Sound somewhat familiar? Where do you LIKE to shop? Why? Now, let’s apply that to our own businesses.

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