THE WOLF STREET REPORT

What’s the deal with retailers — and retail sales?

This is on purpose. Macy’s is not alone. Other department stores and brick-and-mortar retailers are into this too, at least the ones that haven’t filed for bankruptcy yet. So we’ll take a look (11 minutes):

Movie tickets are expensive. Alternatives are plentiful, convenient & cheap. Read… The Brick & Mortar Meltdown at Movie Theaters. But a Few Movies Still Make it Big

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  48 comments for “THE WOLF STREET REPORT

  1. andy says:

    Sounds ominous. Maybe it’s just the voice :-]

  2. raxadian says:

    So to sum it up online good, brick bad?

    • economicminor says:

      There are some things that still aren’t available with on line shopping but for most items it is not only more convenient but you can get what you want, rather than what the store has.

      I recently went to my local Home Depot to get a 3 way dimmer. I wanted a specific type. Not only didn’t they have it, but they had a dismal selection unless you wanted a new *smart* switch. I don’t know how that is working out but I don’t really see the need for a smart switch in my bedroom. So I bought it on line with free shipping.. Same for a new pressure gauge for a compressor I am rehabbing. And a new lap top battery and …

      Part of what has happened is that everything has to change constantly. To sell you on needing the newest, it has to be new and different. And it is virtually impossible for any BM store to keep changing inventory or keeping in stock the changing circus of options. Yet a huge warehouse can and you can order on line and the item can be in Loose Joint Mississippi or Cancun and it is here in a few days.

      The world has changed and all those BM malls and strip malls will have to be repurposed into Fast Food Dentistry or Lolly Pop Gyms.

      • Daedalus says:

        Once upon a time, your local hardware store had just about everything. Then came the big box monopolies, and now we have less choice. Once the online megalith drives out the big boxers, they’ll give you what they want, not what you want.

      • KFritz says:

        If someone knows what they want, the websites of Home Despot and Lowe’s have (usually) accurate information on the inventory in their physical stores. I recently used the Sears website to buy a hand tool from a brick and mortar store. The inventory info was accurate. The store had fewer shoppers than a 7-11.

  3. NJGeezer says:

    Hello Wolf,
    Happy New Year!

    Really want to commend you on your weekly podcast. I listen to various podcasts and YouTube videos. Generally i have to accelerate them 1.25 – 1.5x; otherwise, my head will explode. On the contrary, you have a smooth, speedy, well-anunciated delivery which keeps me attentive and saves time. Well done Sir.

    Thank you very much from a grateful follower. Love what you’re doing. Keep up the great analysis.

    • HMG says:

      I totally agree

      A few months following Wolf’s and DQ’s articles and interpreting the comments can turn the ‘man in the street’ into an Economics Professor.

      Could we have an annual Wolfstreet Quiz ?

      Well done Mr Richter.

    • safe as milk says:

      yes, i am also enjoying the podcast format. if possible, i would suggest making it available as an audio only podcast feed so it can be automatically downloaded to my phone without having to use youtube.

  4. Ismar says:

    Secret is lie behind close door.

  5. Eric says:

    Very insightful Report. We saw this coming long ago with the inception of Home shopping networks on TV, and then internet web store fronts. I believe the interface between phone apps and internet web sites has really pushed the brick and mortar into a corner that they simply cannot compete with. Let’s be honest everyone totes a smart phone around now, and we often multi task while riding trains, planes, shopping via our cell phones or tablets.

    When we talk about returns, Amazon hands down has the best return policy I’ve personally ever dealt with. On 3 different occasions not only did my product get replaced or refunded, I was also told to keep the original purchase.

    Thanks Wolf for the weekly report.

    • Edward Boyer says:

      While this policy is great for consumers, there is a back side cost. Usually to 3rd party sellers. You keep the “returnable good” to not incur shipping costs. The refund, is a small cost to Amazon due to it’s volume, To the 3rd party however, this can be devastating to margins, and unsustainable. To be a 3rd party may actually require the seller to have 20% of sales available for refunds. Question, when evryone has been trained and lured ot Amazon, the competion gone, what becomes of Amazon’s policies? Please note, Amazon has instituted a policy to kick off people who are deemed excessive in returns. Something brick-mortar have yet to embrace.

      • Eric says:

        I worked at an XPO logistics in a 2 million square foot warehouse that shipped and received 100% Amazon products. I used to handle customer complaints. An interesting one that I remember was an elderly lady that ordered a dog crate but received a trampoline. XPO sent UPS to pick up the trampoline and deliver the correct product. Amazon charged XPO the added cost. XPO purchased none of it’s inventory but was liable for any damages or shipping errors. I saw lots of fun stuff like bissel vacuums that were received as 1 piece when in fact the boxes actually contained 4 vacuums and many were shipped as 1 piece instead of 4 individual pieces lol..

        To be completely honest Amazon is entirely too big and communication from Amazon to logistic companies is really lacking.

        I will be honest that I miss the brick and mortar outlets that actually were familiar with the products they sell. Today even brick and mortar operate much like warehouses where 90% of the people in the store know nothing at all about the products they sell.

        Visit a Walmart and ask for an opinion on what blender is better then the others. Another key component of E commerce you get customer reviews of products to help with your decision making. Brick and mortar also forgot that important aspect of shopping.

        • sierra7 says:

          “Today even brick and mortar operate much like warehouses where 90% of the people in the store know nothing at all about the products they sell.”
          This is so true!
          Can’t count on how many times I’ve preferred to support the local B&M store(s) but greatly discouraged by the size of the facilities (what bus do you take to get to “Aisle 13”?) but the total ignorance of most of the salespeople.
          Having a “convenient” almost no questions asked regarding returns in those B&M stores only adds to the frustrations.
          My last return (probably returned 3 products my whole octogenarian life) to Lowe’s almost drove my nuts! Couldn’t just return and exchange at the return counter; no! Had to track down another person to go to the department and get the proper price/UPC code; then I could finish. Ridiculous!
          I remember back the the early 1950’s/60’s in the great retail grocery chain dominance build up; was caught as a grower/wholesaler in the mess….Thousands upon thousands of small retailers were simply crushed and discarded to the behemoths of retailers that were emerging…the “supermarkets”.
          The big fish always devour the little fish…..

    • alex in san jose AKA digital Detroit says:

      I just sent off two items, returning them to Amazon because … I decided I didn’t want ’em after all! But these were not free returns, I had to have some money taken out of the refund which I figured was fair enough.

      Between defective products, The Products That Never Arrived ™, Amazon’s screwups, and a combination of my having to learn that certain things are never to be bought online (clothes) and just plain being wishy-washy, I’ve done a lot of returns.

  6. Geo says:

    Brick and mortar will make a small limited comeback as the bad attitudes start to set in with on line stores. I have observed Amazon and Ebay already allowing shady folks to run business on line. It will take time to run its course. Quality issues and returns will spike. It may take a few years for this to pan out but it is inevitable that some kind of balance will emerge. Brick and mortar cannot completely disappear unless business does something they are currently incapable of. Quality services LOL.

  7. Crazy Chester says:

    Hey Wolf:
    Instead of this little room glum pitch, let’s dress up this demise a bit. Hire that guy from ‘Frontline’ – the one with the menacing voice – to do the voice over. Then add some vaguely Wagnerian strings along with the inevitable march to war drumming, broken by the despairing cry of warning from the horns – the climax then the end of the world stuff. Then as your movie moves along we can entertain ourselves by spotting the ‘goners’ – the ones you just know are not going to make it to the credits. Hell, with some time, you could make a pretty good drinking game out of this. You know, drink up whenever you hear ‘Liquidation’ or something along those lines. Example: https://youtu.be/ACkiKVtF3nU.

  8. Wolverine says:

    You missed one in online resistance stores – hardware/lumber.

    Thanks for another great article.

    • raxadian says:

      I dunno about lumber but people are buying that kind of hardware tools online. In fact if you need something specific online is best. But small stuff is still bought offline at least, unless you have a big project.

  9. Old Codger says:

    Retail sales are 70% of GDP in most western countries.

    The customers are BROKE!

    QED

    OC

    • Wolf Richter says:

      Old Codger,

      I think there is some confusion here. Retail sales are just goods that consumers buy. They do not include services.

      Retail sales are part of “consumer spending.” Consumer spending includes services, such as the biggies healthcare, housing, education, but also haircuts, financial services, etc. Consumer Spending is about 70% of the economy. Retail sales are a much smaller part of it.

      Also, as I said in the report, overall retail sales are likely to be UP 4% to 5% in Q4, powered by the boom in online sales, and also by inflation, and increases by the “not-under-attack” retail sector (gas stations, auto dealers, grocery and beverage stores, and convenience stores). These retailers that have largely been immune to online competition make up 55% of total retail sales. And they’re doing OK.

      The “under-attack” retailers — the retailers that populate malls — make up 45% of retail sales, and their brick-and-mortar operations are getting hit hard, though their online operations are booming.

  10. RD Blakeslee says:

    My microeconomic view: Telecommuting, online shopping and banking, movies and other entertainment online, reference service and books that used to be available only at a bricks and mortar libraries, email and cellphones, televised sporting events, online dating services …

    Don’t like what’s happening to you in the city?

    You don’t have to live there, anymore!

  11. Jdog says:

    Not all brick and mortar stores are collapsing, my local Costco and Walmart are always crowded. The 20th century Department Stores are dinosaurs, they have been victims of a constant decline in consumer prosperity. While the average American is still addicted to materialism, they do not have the disposable income to practice the habit of shopping for a social activity. Today, price is the determining factor, and only the biggest suppliers can provide the price breaks.

    • Harrold says:

      I think the decline of shopping as a social activity is what is killing malls and big box retailers.

  12. Matt says:

    Is there anyway to get these in podcast form?

    • Briny says:

      Since they are hosted at Youtube, any of the various Youtube downloaders/apps should do the trick.

  13. 2banana says:

    It is a shame.

    Shopping used to be a social experience. A time to try new things,

    But for that experience, you need clean, safe and fun malls, streets and stores.

    Instead, stores and cities have done everything they can to make that a miserable experience.

  14. HR01 says:

    Wolf,

    Thanks for the fine report.

    With regard to convenience stores, don’t believe they’re doing well.

    Our local 7-11 used to be swamped every morning for the commute crowd. Mon-Fri from 6 AM until 9:30 AM, would be a line at the counter for coffee. This was a decade ago. Now it’s nearly empty at those times. Perhaps one or two customers in the store.

    Perhaps the convenience stores have been following the movie theater script? Raise prices to make up for declining volume? Can attest to the fact that some products in 7-11 have more than doubled in price in the past decade.

    Also wanted to point out that 7-11 has also attempted to go digital. The company has its app out there. However, it seems to have not worked out well. When waiting in line to pay, have had to endure delays while the checkout person tries to redeem an app promo offer from a customer.

    This consumer still willing to pay retail at brick-and-mortar in exchange for solid customer service. Still finding a few here that provide great service.

    • 2banana says:

      Family owned WAWA vs corporate 7-11.

      Case study on how to crush your competitors, gain a massive loyal customer base and treat your employees well.

    • Wolf Richter says:

      I don’t think 7-Eleven is the best example of the neighborhood-type stores I was talking about though they’re solidly in that space. They’ve been around forever, and they’re franchise operations. But even if the 7-Eleven near you does a lousy job — what types of revenues they generate is hard to tell from just driving by — it doesn’t mean that they’re all doing a lousy job.

      The ones I have in mind are the Walgreens, CVS, Target’s new format, and others that are piling into the space in a big way.

      And the point is this: they do NOT face competition from the internet. They’re there if you need something and can’t wait for delivery – from a hammer and school supplies to sandwiches.

  15. SocalJim says:

    There are two trends hurting retail. First, more people have taken up the “sharing” and “material minimalism” ideology. Secondly, basics like rent and food are taking a larger percentage of the budget.

  16. Joe says:

    WHAT GOES AROUND COMES AROUND AGAIN..

    We had ‘C’ commerce when we shopped via a paper catalog to buy products ranging from a bra to a washing machine. These products were delivered via USPS aftee days or weeks.

    We then had the local Merchants were we could by limited everyday items with a short drive.

    We had large Superstores where we could buy a large variety of products with a short drive.

    We now have ‘e’ commerce where we shop with a phone which allows us to buy everything from a bra to a washing machine and delivered to our home within days by the USPS.

    • curiouscat says:

      Always kinda wondered why Sears catalog didn’t become Amazon. They had everything you could dream of in 1958, but it ran down hill, possibly because of lack of vision.

      I suppose regulations had something to do with it as well. When I was 14 years old (1958) I bought a beautiful J.C. Higgins 12 gauge pump shotgun for hunting rabbits. No one asked for proof of age or any other identification. I paid by check from the bank account I opened without an SSN using the money from cutting lawns. This is the world the right wing conservatives miss, as do I. But it will never return.

  17. RCohn says:

    Obviously online( specifically AMZN) sales have negatively affected traditional retailers.
    But has the online retail business been good for Amazon.
    IF you take out Amazon’s AWS cloud business, it is losing money or at best making a very small profit.

  18. endeavor says:

    Consumer goods made in China by robots and political prisoners, shipped by autonomous cargo container ships, trucked by self driving semi trucks to all robotic fulfillment centers, delivered to your home by autonomous delivery vehicles of Amazon and others. All to serve a disappearing demographic of gainfully employed end users. What is wrong with this picture?

  19. Dawn Glover says:

    Perhaps we have reached peak growth and consumerism. As a Society, we have more stuff than we need. For myself, I’ve always been thrifty, but at mid life, I’ve embraced minimalism full force. This trend is growing in popularity along with the anti-consumerism movement and FIRE. Frugal and Saving is gaining traction with the younger generation. I wonder how this has added to the decline of Retail.

  20. Bobber says:

    So what about Target? They don’t seem too well positioned. Clothing is large percentage of their revenue, and clothing is under attack by online sites. Food is also a large portion of revenue, and they have tons of competition there. Target’s prices are not what I would call low. I suspect Target will be extinct some day as well unless they undergo some sort of expensive transformation.

    • Wolf Richter says:

      Target has piled into groceries in a big way.

      • sierra7 says:

        Correct! Many of my friends and children shop Target for items like cereal,canned goods etc. and other items that are brand selective, carried by both Target and the “big” box grocery retailers. Their prices for the same products (equality or near with packaging, weight, volume etc) give quite a bit of savings to workers struggling to make ends meet. They will pick up their savings there and make their other shopping at another large grocery store in many cases in the same shopping center. As a former retailer and a “browser shopper” I routinely walk Target’s grocery aisles to compare prices.

  21. Cashboy says:

    In the UK; I have heard that 25% of online sales will be returned.

    Who is going to absorb the cost of collecting these items and inspecting them and re-packing them where applicable?

    If I was an accountant I would be providing for this 25% estimated returns on my December sales figures otherwise 2019 figures could be embarassing.

  22. SiliconValleySkeptic says:

    Wolf,

    Can retailers ever hope to compete with Amazon’s retail operations? From what I’ve read, Amazon loses a great deal of money on retail sales and more than makes up for it with AWS.

    If Amazon is willing to lose money indefinitely on retail, then it seems all brick and mortar companies are doomed EVEN IF they manage to transition to more online sales.

  23. California Bob says:

    Occurred to me that Amazon’s ‘free shipping on everything (until Jan. 31)’ is an attempt to kill brick-and-mortar stores once and for all. I’ve ordered 8 or 10 items that probably cost more to ship than I paid for them, to fight back.

    • Daedalus says:

      “Free Shipping” is about as real as the “Prices Slashed 50%” sale at your local furniture store. That being said, I, too, try to take advantage of these scammers whenever possible, assuming their offering something I need.

    • alex in san jose AKA digital Detroit says:

      These sellers get big breaks on shipping, for instance I’ve sent a coffee cup to someone who’s pretty local and it cost me almost as much for the shipping as for the cup. But if I were sending it from the Ebay account I work under, I swear it’d have been half as much.

      • safe as milk says:

        @alex i’ve noticed this, too. also, i noticed that if i set up an ebay ups shipment through my ebay account, it was more expensive than shipping through my small business account at the ups website.

  24. safe as milk says:

    i have lived in the same high rise apartment building for decades. we have always had security guards at the front desk. it used to be an easy job. not anymore. there are literally mountains of boxes in the lobby everyday that have to be distributed to residents. the same mountains exist on the street with the delivery vans. i am amazed that more of the stuff isn’t stolen. it would be very easy pickings.

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