THE WOLF STREET REPORT

Normal Americans, the Existential Threat for Retailers.

Ecommerce and the globalization of retail have already crushed old distribution channels, middlemen, local retailers, and large retailers. Even the biggest of the biggies, such as Walmart, are now scrambling to get on top of it, or they too will be counted among those, like Sears, that didn’t — and were obviated by events. (13 minutes)

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  47 comments for “THE WOLF STREET REPORT

  1. Old dog
    Jun 16, 2019 at 10:36 pm

    Let’s imagine a dystopian world in which everybody buys everything online. All the shops are gone. The only stores left are a few mega-stores that survive by becoming a window for their online store. There are no registers. You can touch the products but you have to buy them online, at home or using terminals at the store.

    A quick check on your history will determine what you pay for xyz. You have a good score? Here’s a 10% discount for you. Before you actually pay, you have been exposed to 20 ads. The mantra, “the more you buy, the more you save” has been carved on every layer of your sub-conscience.

    The good news is that the gun with which you plan to off yourself is on sale! Told you, the more you buy the more you save.

    • Jun 16, 2019 at 10:57 pm

      And we’re all work in delivery or as security guards. It’s dystopian but not farfetched.

      • fajensen
        Jun 16, 2019 at 11:23 pm

        And we finally have self driving cars!

        Only, …, to go anywhere we have to agree to make 20 deliveries on the way there. How many (and how dodgy the drop-off points) is decided by how lucky we got on the ride auction app.

        • Tony
          Jun 17, 2019 at 1:26 am

          Yes but we have a problem…self driving cars depend on cameras which are not yet up to the ability of the human eye. They only see 99% of what we see and , of course, that 1% is where the accidents come from.. lol……. The cameras will also have to develop anticipation…is that kid going to run into the road or not, will the person on the bycycle hit a hole in the road and have to swerve or not..is the guy driving behind you late for work…..are you late for your baby’s birth and so on….and so on….and worse than that, is the self driving car going to be highjacked and sold on for spare parts, especially the battery if it is electric… ha ha ah … :-)

        • alex in San Jose AKA Digital Detroit
          Jun 17, 2019 at 3:14 pm

          Tony – You guys all have me screamin’ here, but yeah, intuition might be a larger part of avoiding accidents than the eggheads of Silly-Con valley are willing to admit. As a bicyclist, I swear, I can read minds. I’ll just know a car’s going to turn a certain way, and then it does, and I’m like, “How in hell did I know that?” It was some tiny movement of the car, apparently.

      • Laughing Eagle
        Jun 17, 2019 at 4:59 am

        Physical stores can only carry stuff that moves, so their inventory will not be widespread on choices. Online sales have allowed concentration of inventories to a few distribution sites where almost all choices are available.
        In Wolf’s example of a defogger product for his googles shows stores will only carry what moves. Otherwise it will not be on the shelves.
        Other factors may be in play as to the cost of the product, but the main factor is turnover of inventory in the stores. Cannot have essentially money sitting on shelves, otherwise profits fall.
        Wolf, just another great report on the state of the retail business in America.

        • paul duffany
          Jun 17, 2019 at 11:10 am

          Most products can be ordered by retailers.

          I hate buying products based on their pictures.

          This is actually a step backwards to when we had Sears and Spiegel Catalogs.

          Tell me how it is different.

    • IdahoPotato
      Jun 16, 2019 at 11:31 pm

      “The only stores left are a few mega-stores that survive by becoming a window for their online store.”

      What’s not to like? My husband and I went to a store to buy hiking boots for both of us. I picked a pair and asked if they had another color. They said they had one online and would ship it to my home for free. They also gave me a 20% off code for my next purchase.

      So my husband liked a pair that wasn’t his size. He got his size from them online with the 20% off. I think this business model is perfect. They don’t need to carry everything in every size, but customers can choose something and get an idea of what to expect.

      Now they sent me a another coupon code, but I will be sending all future notifications to the junk folder ‘cos we don’t need shoes for a long while.

    • Trinacria
      Jun 17, 2019 at 12:28 am

      “Let’s imagine a dystopian world” …. I think it’s already here and has been for a long time. I believe it is a question of where we as a society are on the proverbial “dial” so to speak. Maybe 20 years ago, the dial was a 10 and gradually today the dial may be a 30 for instance. Next year say at 35, etc, etc, etc. Obviously, the higher the “dial” the worse things are.

      George Carlin, whom I believe really had his finger on the pulse of this country, during one of his monologues, called consumption the true american pass time and goes on to say it’s not baseball, “flock” baseball (I cleaned that up as this is a very respectable site), it’s consumption!!!
      Boy did he know the score!

      Here’s what I want to know… who is buying all this crap??? We know that debt of all kinds – including consumer debt – is at incredibly high levels (Wolf has done a great job with so many article on this point). I also looked up the retirement savings of baby boomers and here is what I found: “Only 55% of Baby Boomers have some retirement savings and, of those, 42% have less than $100,000. Thus, approximately half of retirees are, or will be, living off of their Social Security benefits”. Scary stuff!!! Man, I couldn’t live like that.

      Recently I read that many companies are no longer targeting the once coveted millennial generation….they figured out that “they” have no money and have too much debt. Imagine that!!! They had to do a research study to find this out.

      Again, I ask, who is buying all this crap??? With on line buying it is so easy for folks to get into financial trouble.

      Indeed, it is dystopian as “wants” have become confused with “needs”.

      The truth that “less is truly more” is simply lost on too many folks. In fact, I believe the more stuff folks have the less happy they are inside and most don’t realize it. Not to mention being stressed out about the debt levels and lack of savings (especially for the boomers).

      I believe something serious is on the way (the powers that be have done everything to postpone it) and many are unprepared as “we whistle by the graveyard”. To me, serious recessions/depressions are sociological phenomenons that are caused by bad behavior on parade (too much consumption, too much debt, etc) that set up in such a manner that a disruption of any kind has the potential to collapse the house of cards.

      Simplicity and not being a slave to consumption are true freedom. I wish more folks could experience said freedom. Then maybe “we” wouldn’t be so dystopian!

      • w.c.l.
        Jun 17, 2019 at 3:07 am

        I’m with you on adopting simplicity, but if we all do won’t we wipe out the self-storage industry in this country?

        • Bet
          Jun 17, 2019 at 10:54 am

          you got that right about the storage industry. When I moved my parents out of their house, they filled up FOUR storage units, as well as tons ( literally) of junk to goodwill and the dump. About everyone in my demographic, is either downsizing, or talking about it and getting rid of “stuff” or the crap that it is. When I went to said storage units as the “curator” of my parents crap, its UNREAL the amount of useless stuff stored. Do they not realize the capital expenditure to store old crap? and the time and energy to get rid of it? I am still suffering from the PTSD of my parents move, And still have my utility room with boxes of their stuff still..argh. I am purging again before years end. Who buys all this crap? and IT IS crap I see in the stores and malls. Got news , Possessions possess you. I think longer term retail due for a HUGE contraction

      • zagonostra
        Jun 17, 2019 at 8:16 am

        When you’re helping your children get through college, older parents with their healthcare, while trying to stave off your own healthcare and dental needs, paying increasing real estate taxes, it not about consumption or living a simple uncluttered life, it’s about survival for yourself and looking out for your loved ones.

      • Dale
        Jun 17, 2019 at 8:34 am

        The crap is mainly in services. Wolf has pointed out, inflation in services is much higher than that for goods. But also our consumption of these services has increased.

        Over the last 60 years, on a (total) CPI-adjusted basis*:
        Nondurable goods consumption is up 50%.
        Durable goods consumption is up 100%, but still only half that of nondurable goods.
        Services consumption is up 300%. Services consumption is now more than double that of goods, while 60 years ago is was slightly less than goods consumption.

        Within services, again adjusted for CPI, higher education is up 700%.
        Financial services are up 500%.
        Healthcare services are up 900%.
        Housing and utilities services are up 200%.
        And so on.

        • Dale
          Jun 17, 2019 at 8:36 am

          The growth numbers are per-capita as well as CPI-adjusted.

      • economicminor
        Jun 17, 2019 at 10:44 am

        The other side of simplicity is self sufficiency. Simplicity is outside the complex system of maintenance and supply. Those practicing simplicity are totally reliant upon the *system* to supply most of their needs. You really want simplicity, you’d better join a religious commune where the systems of life are regimented and simple. Living outside that you are totally reliant upon the hope that nothing changes to radically or quickly.

        A farmer is self sufficient in that they repair and maintain most of the systems that allow them to grow food and hopefully prosper. This is a complex system of tools and knowledge that is far from simplistic. This is the basis of life. Food and then shelter. Shelter is not simplistic either. Not a cave or a stone hut. Cooking your own food isn’t really simplistic either unless you really like the simple foods but then where the foods come from is really not simplistic. You can be simple and eat what is available which is sprayed and altered and induced or hope the *organic* foods are really organic. Where do you think all that nitrogen that grows the foods comes from? No wonder they’ve found glyphosate in Cheerios, etc.

        If you want to totally rely on others, the system which we all know is complex and fragile, you can kind of live simplistically.

        Yet, nothing is simple any more. Thinking it is, is being an Ostrich or a poultry being raised for food. You are just a cog in the wheel on someone else’s cart.

        If you actually want security you must understand and be able to deal with complex systems that support life and have the tools and knowledge to fix/repair most of them. Or just smoke a lot of pot.

        • 91B20 1stCav (AUS)
          Jun 17, 2019 at 5:13 pm

          e-minor: well-said! Air doesn’t come from the sky, nor water from a tap, or food from the supermarket. Our ever-increasing numbers put more stress on the planetary systems that generate these absolute basics with each passing day, with damned little reinvestment in their expansion (CAN they be expanded?), and maintenance. As R.H. Heinlein wrote over fifty years ago: “…we’ll all be getting a bit hungrier, by and by…”. A better day to everyone.

      • TXRancher
        Jun 17, 2019 at 7:58 pm

        “Again, I ask, who is buying all this crap???”

        My wife.

    • Jun 17, 2019 at 1:58 pm

      I think you might then go to a designated shopper. I see a return of domestic help, albeit the wealthy may disappear, and the poor will help the poor.

  2. Javert Chip
    Jun 16, 2019 at 11:39 pm

    A pretty common statistic on the web is the US has twice the per-capita retail space as whoever comes in 2nd place. The US can probably shed 50-75% and still have a strong retail presence…depending upon how that space is used.

    With rare exceptions (Apple Genius Bar & my AT&T wireless store, which both deliver highly specialized & individual service), I’m not seeing any retail model that comes close to offering value-add for actually going to a B&M store.

    Wolf’s law says “nothing goes to zero in a straight line”, but I’m not even seeing what I would classify as serious experimental attempts at defending B&M.

    • Auld Kodjer
      Jun 17, 2019 at 12:29 am

      And maybe 3 times the self-storage space per capita over 2nd place – to store all that unbridled consumerism once the basement and garage are full.

      • Trinacria
        Jun 17, 2019 at 1:03 am

        Yes, I was going to mention self storage. Here in the Portland, OR area my wife and I marvel as we see some 6 or 7 new fancy self storage (with climate control) being built not all that far apart from each other! I guess we now need fancy places to go “visit” our “crap”…next thing you know, these places will have wine and espresso bars!!!

        • Ethan in NoVA
          Jun 17, 2019 at 9:13 am

          People rent their apartments then find out how small they are.

          Self Storage is a scam industry, especially public storage. Fine print says all sizes are approximate which makes it hard to comparison shop. I rented one during a move and the unit was 18% smaller than the advertised size.

          The insurance they push most people to buy is mostly worthless.

          Public Storage bought out a lot of the better smaller operators and their service and cleanliness declined heavily.

    • 91B20 1stCav (AUS)
      Jun 18, 2019 at 12:49 pm

      Mr. Chip-could it be that very few of the current management types in large B&M never spent as much as a day ‘working on the factory floor’? Good at wrangling finance and the stock market (even that, maybe not so much), but with no real ‘feel’ for that essence of their business that has generated genuine revenues? Much as many of us believe what comes from the natural environment (air, water, food) will always appear without constant study and reinvestment, I’ve seen the same thinking (that sales revenues will always show up, somehow) occur in corporate management. Constant SWOT analyses don’t seem to figure much in this line of work anymore, hence your spot-on final paragraph. May we all find a better day.

      • 91B20 1stCav (AUS)
        Jun 18, 2019 at 12:53 pm

        agh, typo- ‘ever’ rather than ‘never’ “spent a day on the factory floor”. my apologies. (Obviously time for me to get off the computer and mow some more defensible space…). Best to all.

  3. roddy6667
    Jun 17, 2019 at 12:11 am

    “The United States devotes four times more of its
    real-estate square footage to retail, per capita, than Japan and France; six times more than England; nine times more
    than Italy; and 11 times more than Germany.”

    https://www.citylab.com/design/2017/12/the-great-retail-retrofit/548753/

  4. Curious
    Jun 17, 2019 at 12:49 am

    I agree that ecommerce can only grow, since there’s no way that brick and mortar, with its supporting roads, cars, parking spaces, infrastructures, and consumer shopping time can ever compete with digital light-speed information, photos, comparison shopping and quick delivery.

    But hey, it’s still enjoyable to walk into a bookstore and browse, flip pages, and just walk around. But when it comes to wanting a particular book, I won’t bother assuming I can get it at a store, and will just go to Amazon, point and click, and it’s ordered within a minute!

    As for Jet.com, which I actually never heard of until now, but after reading that they are, like Amazon, essentially “a smart shopping platform that allows its member to shop online from various retailers,” I’m not so sure that Walmart’s purchase was wasted. Apparently, they are keeping the employees, so it may turn out in the end to have been worth more than the $3.3B they paid. My guess is that Walmart’s intention was always to merge Jet’s platform and complete operation into Walmart’s ecommerce platform. And being that Jet’s operations are essentially non-physical, but rather based on ecommerce expertise and experience, buying that established team could turn out to be a smart move.

    • Ethan in NoVA
      Jun 17, 2019 at 9:14 am

      Also, online shopping = shopping while at work. Little can compete with that.

  5. Iamafan
    Jun 17, 2019 at 1:33 am

    Exactly what is dystopian about online shopping? I prefer it than wasting my time going around. The only thing left to do is buy fresh food, go to the doctors, and get a suit fitted. The rest is for fun.

    • alex in San Jose AKA Digital Detroit
      Jun 17, 2019 at 3:21 pm

      I’ve had two B&M phone stores close on me, and after being texted by my carrier that I needed to make a payment TODAY about an hour before the last store closed, and of course I didn’t immediately check the text and by then it was too late, I tried setting up auto-pay online. I thought I had it working too. But the next day I got a text: the payment didn’t go through for some arcane reason. So I rode on down to the B&M store and paid my bill, cash.

      Online payment is just beyond some companies.

      But a lot of stores are effectively hitting themselves on the head with a hammer and wondering why their head hurts. CVS used to stock these great wooden cotton swabs. I was a devoted buyer. They’ve stopped stocking them, and I’ve just ordered some online. From Amazon. Made in China.

  6. billy
    Jun 17, 2019 at 7:25 am

    We live in the country and buy a lot of what we need online. Online shopping will “win” because it is so much better, cheaper and nowadays not that slower.

    I do not see online shopping as “dystopian”. I avoid wasting a lot of time, money and gasoline by doing it. This is simply another case of a superior model displacing an inferior one.

  7. RD Blakeslee
    Jun 17, 2019 at 7:51 am

    Wolf mentions small manufacturers can now sell directly to consumers online. The problem is finding them.

    Their spending for advertising cannot compete with the biggies and the biggies buy their way to dominance in the online search engines.

    • Ethan in NoVA
      Jun 17, 2019 at 9:20 am

      Community forums are big! In the pinball and arcade community there are a number of dealers for parts and upgrades that have grown. Good products and service lead to word of mouth via forums, chat systems and youtube videos.

      Same goes with the diving community. There is ad spend of course, and email marketing and all of that but as long as it’s not something super common the mom and pops do exist and prosper.

    • Jun 17, 2019 at 9:47 am

      That is very true. It’s really tough for small outfits to get on top of the pile.

      But if you have been using the product, you can google the manufacturer’s website to see if they sell direct. Also, many times, a manufacturer will charge the full retail list price, while a retailer might discount. So it’s not always straightforward, even if you find the manufacturer.

      • ML
        Jun 19, 2019 at 12:39 am

        The manufacturer has to sell at full price to the direct customer to offset the discount that retailers get for buying stock in bulk; worse margins for the manufacturer if the stuff is sold to a wholesaler. The retailer offers a discount/lower price to free up capital in slow moving stock and because the retailer overestimated demand.

        We direct customers can end up overpaying buying direct from the manufacturer. But at least we are more likely to get freshly made stuff with a long use by date. And we help too by helping to keep the manufacturer in business. Which is often more than big retailers do when they insist on suppliers selling at rock-bottom prices or else the retailer will take its custom elsewhere.

    • MC01
      Jun 17, 2019 at 10:10 am

      I hope Wolf won’t take me as a stalker but it took me all of a whooping two minutes on Amazon to find a 3P (third party seller) from India selling bedsheets made from 100% 1200TC Egyptian cotton (the softest and most luxurious cotton fabric), and that time included looking up seller details. On eBay it took maybe one minute to find the same goods from similar sellers, and there’s a much wider range of colors available.
      Of course big companies such as Ikea and Pier 1 Imports sell their own bedsheets, but do so on their own websites, not marketplaces. Why should they directly compete with hundreds of hungry competitors after spending millions to design their websites and making them highly visible?

      You can buy LED growing lights directly from the factory in China, dog grooming articles directly from the factory in Germany, strong spirits directly from the distiller in France, motorcycle parts directly from the factory in Japan… if you are after something a little different many of these companies will be delighted to have you as a customer. There may be a bit of a language barrier but it can be overcome and shipping from some countries may be ultra-expensive (cough… US… cough…), but the entry barrier into the worldwide marketplace is getting lower and lower.

      • Bet
        Jun 17, 2019 at 11:00 am

        Macy’s in Seattle Northgate mall closing the store, I scored me some very nice cotton linens for 70% off, hard to beat that. Northgate one of Seattle’s oldest malls, Penneys gone Nordies closing( been there for 50 years) and now macy’s. The mall going to be redone as Apartments, condos, some retail…. peeps need housing more than stuff……….perhaps

  8. CreditGB
    Jun 17, 2019 at 10:32 am

    Wonder where Sears would be now IF VC had not taken over and crippled it with debt wholly unsupported by on its going operations. I guess that scenario would mean they would have had to have competent management.

    • Jun 17, 2019 at 9:46 pm

      Wonder where Sears would be if it had kept its mail-order business intact and nurtured it and then switched it all to the internet?

      • Mike G
        Jun 18, 2019 at 11:18 am

        They closed down their mail order catalog business in 1993. They could have been what Amazon is today if they had less-myopic management who weren’t chasing after idiotic diversifications like stock brokerages.

  9. Bobber
    Jun 17, 2019 at 11:14 am

    Costco has a B&M retail model that works, and they are continually adding new stores. If you can fill up a large cart with $300 worth of needed goods, Costco has proven this to be sufficient incentive to visit a B&M retail location.

    Plus, Costco attracts a wealthier consumer than Walmart because it conducts quality control and limits shelf space to high demand items, yet there is always plenty to buy. Walmart stocks a bunch of junk.

    For this reason, I think the migration from B&M to online will not go as far or fast as many people think. I do a fair amount of shopping online on Amazon, but I can’t imagine ever moving my Costco purchases online. There would be too much shipping and packaging to deal with. If I can fill up my cart with $300 worth of stuff and get through checkout easily, which is always the case at Costco, it’s actually quicker and easier than the online experience, without the packaging and shipping hassles.

    I believe anything sold through a Costco or similar store can survive competition with online retail, or least provide a drawn out battle.

    • Jun 17, 2019 at 9:40 pm

      Bobber,

      “… will not go as far or fast as many people think.”

      It will go very amazingly far. But it will go slowly. It took over 20 years to get this far, it’ll take another 20 years, and the transition still won’t be finished. If you look at the change just quarter by quarter, the inroads of online sales have been small — and that’s why so many retailers just put up a website and essentially ignored it. But after 20 years it really ads up.

    • Juanfo
      Jun 20, 2019 at 2:00 pm

      Down here the local COSTCO is eating the WM’s lunch.

  10. Michael Engel
    Jun 17, 2019 at 3:12 pm

    Macy’s & friends are doing great.
    In Nov 2008, M was $5.07, today M is $20.
    JCP in Mar 2009 bottomed at $13.71. Today JCP = $0.80.
    When suppliers smell the stench, they purge inventory.
    A retailer going BK can send suppliers down with them.
    Estate lawyers feast, on every cent suppliers got in the last three month before BK.
    That’s the law !!

    • NaturalOnly
      Jun 17, 2019 at 9:16 pm

      JCP forgot who their customers were. You cannot find clothes for regular people. I know someone who works for an apparel company and 10 years ago he said they purged their bread and butter lines that most people buy to shoot for high end customers. No high end customer goes to Penneys. I have not looked for years, but they had nothing I would consider wearing at any price the last few times I looked.

      If you go to a department store and cannot find a pair of decent pants to buy, there is something wrong.

  11. vinyl1
    Jun 17, 2019 at 3:28 pm

    Home Depot has a good model. Every morning, you’ll see tradesmen loading up their trucks with plywood, framing lumber, plumbing fixtures, appliances, paint, cement. These guys won’t be ordering online, because they buy thousands of pounds of goods at a time.

  12. Michael Engel
    Jun 17, 2019 at 6:47 pm

    HD cannibalized itself.

  13. IslandTeal
    Jun 19, 2019 at 10:16 am

    Sorry… Tradesmen buying at HD mostly because of convenience and charge accounts. Smart tradesmen buy from wholesale and get better discounts.

Comments are closed.