There is a lot of enthusiasm about traditional retail dying. Yet retail as a whole is growing. E-commerce is growing at a faster rate, but retail as a whole is growing still.
Retailers are now often dismissing any responsibility for their struggles, and are by default blaming Amazon for it. Often from an angle of being unable to do anything about it. Amazon is of course a big factor, but it is one of many.
The test for business management is to explain their future strategy without mentioning Amazon once. It has been frustrating to hear so many mentions of Amazon, without any sense of what a retailer can do itself.
The narrative that Amazon is singlehandedly responsible for the brick-and-mortar decay is overly simplistic and overblown. Amazon is merely a representation of the shifting customer preferences and behavior, its success is largely the result of it being able to capture that shift. By now it is driving it too, creating a virtuous cycle though. Yet the common message that Amazon is the cause of store closures and decrease in sales is trying to fight the market. The market, and the consumer, is always right. Something all traditional retailers stand by, but in this case still act as if the growth of e-commerce is somehow a trend they can counter-impact.
In the US there is far more retail square footage per capita than in any other developed market at estimated 25 square feet per capita. For comparison, United Kingdom is close second at 23 square feet, Canada at just 13 square feet, and Australia gets by with only 6.5 square feet. Bloomberg reported that year-to-date store closings are already outpacing those of 2008, when the last recession was raging. Physical retail ability to capture sales per square foot has decreased, forcing retailers to readjust, which unfortunately means closing stores for many.
But for all the struggling retailers like J. C. Penny, Macy’s, and Sears, there are just as many growing ones like Best Buy, Home Depot, Lowe’s, Costco and TJ Maxx. There are even more small to medium flourishing retailers. Many of them have found ways to offer unique experiences, selection or pricing (like dollar stores). All of those are areas Amazon is not good at; we wrote more on this in Un-Amazon-Able Is the Only Way to Compete with Amazon. But this is not something only Amazon is not good at. Like we just mentioned, Amazon is a representation of the general e-commerce trend, so traditional retail trying to do what e-commerce does better is walking into a dead-end.
The best way to look at this is that e-commerce as a whole is just one of the examples of modern retail. But it doesn’t end online, there are many traditional retailers which have figured out how to become modern too. Our thesis is that retailers loosing out are the ones which confuse the growth of e-commerce as not part of the bigger shift in retail. Somehow it is forgotten that traditional retail still represents more than 90 percent of all retail. Amazon growth is a result (and cause) of e-commerce growth, e-commerce growth is a result (and cause) of modern retail. Amazon is the most visible example, but it’s really part of a much bigger shift.
Whether online or offline, the key is understanding why and how customers shop. Struggling retailers are often not positioned to adjust to customer behavior change. Instead of focusing so much on what Amazon is doing, the focus should be internal to reinvent for the new generation of shoppers. If anything, the “don’t bet against the market” advice is as relevant as ever.
