In current jargon, the phrase the “retail apocalypse” refers to the vast closures of stores throughout the world. Over the past several years, tens of thousands of physical retail stores have disappeared, including both independent retailers and locations maintained by international chains such as Macy’s (which recently announced it would be closing 125 U.S. stores).
Many analysts—including some of those featured in the abstracts we have offered in the past—place the blame for this apocalypse squarely on the influence of Amazon and its massive effects in terms of expanding ecommerce and online or mobile shopping. But such singular view is misleading; even Amazon, with all its reach and power and sales, cannot bring about such a radical shift on its own. Rather, three other macroeconomic influences provide a better explanation.
First, income inequality is vast and growing. In the United States, the middle class has all but disappeared. Historically though, the middle class represented the main consumers of retail goods. Not only do stores that might have targeted the previously dominant middle class lose their target markets, but the ways in which people with very high and very low incomes tend to spend also reduce the money available to retailers. That is, people at the lowest end of the income spectrum must devote virtually all their earnings to basic necessities, rather than shopping for hedonic goods. People at the highest end of this spectrum have the means to buy more, but they generally do not; wealthy consumers tend to save far more of their money than those in the middle.
Second, even when they do spend, consumers today are increasingly likely to purchase services rather than products. For example, spending on health care services now accounts for an average of 18 percent of people’s income, whereas in 1960, they spent only about 5 percent of what they brought in on such necessary services. Other services, whether they seem more like necessities (e.g., education) or luxuries (e.g., entertainment), similarly account for greater proportions of people’s spending than they have in the past. For retailers, this shift means that people just don’t seem to want what they are selling, namely, products of various types.
Third, the retail industry itself may be responsible for its own demise, in the sense that big box stores have progressively driven out smaller, mom-and-pop offerings that created diversity and distinction in retail settings. Whereas Amazon often takes much of the blame, in reality, large retailers like Costco, Walmart, and Sam’s Club account for more of the growth in sales in recent decades. They also continue to provide products that consumers cannot access as easily or conveniently online, such as gasoline or immediate food purchases.
In some ways, these trends coincide. For example, the growing class divisions are supported by and also support the growth of low-cost retail options like Walmart. Regardless of which of these factors, alone or in combination, drive the closure of stores though, the outcome looks the same: a retail landscape vastly altered by the ongoing apocalypse.
Discussion Question:
- What is causing the demise of brick-and-mortar retailers?
Source: Austan Goolsbee, “Never Mind the Internet. Here’s What’s Killing Malls,” The New York Times, February 13, 2020.