Brick and Mortar vs Online

[TulsaGoldenHurriCAN]

One thing about Utica Square and online shopping. There are several places at Utica Square which do have online shops but their items aren't sold on Walmart or Amazon.  So Best Buy for example has their own skus to confuse the market on things like Samsung TV's.  But overall I can get a Samsung TV from any of those places.  If I want to buy something from Pottery Barn my choices are Pottery Barn, Pottery Barn Online, or somebody who bought something from Pottery Barn.

Even then, all the brands that do compete in any markets shared by walmart/amazon/any-online-retailer will be affected and those closures will lower demand for retail space and open up vacancies, even in Utica Square. Lower retail space demands will lower prices and will hurt Utica Square's long-term positions.

Places which have exclusive brick-and-mortar options and exclusive lines could be fine, but if you look at the massive list of big retailers to close in the last year, quite a few met those criteria at least partially. Most make sense (especially in hind-sight!), but some were brands that seemed untouchable a few years ago.

http://www.businessinsider.com/list-stores-that-closed-this-year-2017-12

http://www.foxbusiness.com/features/2018/01/04/retail-apocalypse-21-big-retailers-closing-stores.html

Teavanna had plenty of exclusive flavoured teas that many people loved, but they went under. Some of the Ascena stores seems to match that criteria of exclusive merchandise. This is just the beginning and this all has happened as the national economy has been booming the last few years. 2017 was a record year for store closures (more closed than opened).

Currently, online retail makes up only 8.4% of all retail (as of 3Q2017) and is increasing steadily every year, expected to reach 18-21%. Imagine how bad it will be for retail at the next downturn...

https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

[cannon_fodder]

 I was curious, so pulled some numbers to see how bad the apocalypse from online sales was...correct my interpretation as you deem fit.  Brick and mortar retail obviously faces competition from online sales.  But I think the excuse is over simplified by finding the most obvious scapegoat.

2012 Retail sales were $4,296,636,000,000.  In 2017 total sales are $5,081,553,000,000 on a fairly steady growth curve at 3-5%.  A disproportionate amount of that growth is now going to online sales, but it appears brick and mortar is at least holding steady.

Online sales account for ~7.5% of all retail sales and is expected to rise to 10% by 2020.   Even if online sales consumed 0% in 2012 and 10% in 2017, there would still be more brick and mortar spending in 2017 than 2012 (really it was closer to 5% and 8.5%).   2008 is the one year on record where we can be certain brick and mortar sales dropped as a group, but by 2011 sales were above where they had been prior to the mortgage/banking/financial crash.

I certainly understand that few anticipate booming growth in retail, particularly brick and mortar.  But when 90% of goods are expected to bought in physical locations and the market is seeing low but steady growth, the death knell blaming online sales seems like an oversimplified explanation. 

Monthly retail sales:
https://www.census.gov/retail/marts/www/adv44000.txt

Long term trend line:
https://tradingeconomics.com/united-states/retail-sales-annual

Additional insights including online sales #s:
https://www.emarketer.com/Article/US-Retail-Sales-Near-5-Trillion-2016/1013368
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

[TheArtist]

I was curious, so pulled some numbers to see how bad the apocalypse from online sales was...correct my interpretation as you deem fit.  Brick and mortar retail obviously faces competition from online sales.  But I think the excuse is over simplified by finding the most obvious scapegoat.

2012 Retail sales were $4,296,636,000,000.  In 2017 total sales are $5,081,553,000,000 on a fairly steady growth curve at 3-5%.  A disproportionate amount of that growth is now going to online sales, but it appears brick and mortar is at least holding steady.

Online sales account for ~7.5% of all retail sales and is expected to rise to 10% by 2020.   Even if online sales consumed 0% in 2012 and 10% in 2017, there would still be more brick and mortar spending in 2017 than 2012 (really it was closer to 5% and 8.5%).   2008 is the one year on record where we can be certain brick and mortar sales dropped as a group, but by 2011 sales were above where they had been prior to the mortgage/banking/financial crash.

I certainly understand that few anticipate booming growth in retail, particularly brick and mortar.  But when 90% of goods are expected to bought in physical locations and the market is seeing low but steady growth, the death knell blaming online sales seems like an oversimplified explanation. 

Monthly retail sales:
https://www.census.gov/retail/marts/www/adv44000.txt

Long term trend line:
https://tradingeconomics.com/united-states/retail-sales-annual

Additional insights including online sales #s:
https://www.emarketer.com/Article/US-Retail-Sales-Near-5-Trillion-2016/1013368
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

Another thing to add into the mix is that I have heard that the US has become very "over retailed" compared to other countries by quite a bit.  Which I would guess would mean something like... If one country has 5 stores of "A" number of square feet, selling goods to "B" number of people and the US has say 10 stores of the same number of square feet, selling goods to an equivalent number of people.... That could make things a little tougher for the US stores to make a profit (cost per square foot, profit margin, etc. could have a mitigating effect).  So basically we have more "store" competing for the same customers which can make turning a profit a little tougher.   

Also its not just that people are buying online instead of a brick and mortar, the brick and mortar have to shave down their profit margins in order to be competitive with online prices. So the online game has pushed down profit margins for brick and mortar. 

But here is something that I have just recently noticed and will be interesting to see how this pans out.

Its still true to a large extent that the more volume a store or chain of stores can buy, the cheaper they can get their products for.  If I buy 50 of something it costs me X, but if I buy 100 or 200 of something it can cost me less and so on.  The big chains have an advantage over the small guy like me for that reason for they can buy items in the thousands to tens of thousands (so interesting to see so many big chains struggling when I look at it that way).  BUT what I have noticed lately that even small guys like me are now beginning to be able to buy directly from the manufacturers with smaller orders (still often larger numbers of items than I can currently sell) and get the mega volume price.  Its becoming easier for me to connect directly to China manufacturers, and they are more willing to ship smaller orders at the same prices as the mega orders, thus me eliminating my middle man like the big chain has been able to do. 

Its still difficult for me to get even those minimum orders, but if I could get my business to be just a little bigger with more volume,,, I could beat amazon and wal-mart prices. 

Case in point.  I am doing more and more painting classes but I use just one size 16 x 20 stretched canvas so it could make sense to buy a lot of them. Some small stores like mine sell the "name brand" ones for about $12 or more. At Hobby Lobby the cheapest ones cost  $4.99 when they are 50% off.  You can get them online for about the same cost if you buy in packs.  I can get them from China for about $1.75 each if I get 500 of them, less if I buy 1,000 or more.  So I could have my "regular everyday" price be less than the chains or US online stores prices. 

May not be the best example there but anyway am seeing that more and more its getting easier for the small guys like me to buy directly from China or India and at smaller volumes.  Getting only 500 or 1,000 of one item would have been extremely rare only a few years ago and now are seeing it more and with even smaller volumes, like 50- 100 of an item, in some instances.  If that happens it could definitely help level the playing field for small brick and mortars to compete with chains and online.

[erfalf]

Now, keep in mind, I have no evidence to back this up. But cannon's points only go to bolster my hypothesis.

As he mentioned, we aren't really having so much of a retail crisis as it's made out to be. But stores are closing. And in my opinion, not just because the store itself was say too big or something, but I think it is because there is just another one much to close. People are willing to drive further than they used to. People in Bartlesville easily decide to drive to Owasso just to go to dinner. Tulsa doesn't need 5 Best Buy stores in the metro. It's just too many. I think retailers have finally figured out that they really can do more with less in a society that is as mobile as ours is.

[Conan71]

Case in point.  I am doing more and more painting classes but I use just one size 16 x 20 stretched canvas so it could make sense to buy a lot of them. Some small stores like mine sell the "name brand" ones for about $12 or more. At Hobby Lobby the cheapest ones cost  $4.99 when they are 50% off.  You can get them online for about the same cost if you buy in packs.  I can get them from China for about $1.75 each if I get 500 of them, less if I buy 1,000 or more.  So I could have my "regular everyday" price be less than the chains or US online stores prices. 

May not be the best example there but anyway am seeing that more and more its getting easier for the small guys like me to buy directly from China or India and at smaller volumes.  Getting only 500 or 1,000 of one item would have been extremely rare only a few years ago and now are seeing it more and with even smaller volumes, like 50- 100 of an item, in some instances.  If that happens it could definitely help level the playing field for small brick and mortars to compete with chains and online.

So wait, now we are figuring out retail sprawl is a bust?!?  Say it isn't so!

I can relate to your point about smaller guys being able to build their margins just by spending some time sleuthing around and getting closer to or dealing directly with the manufacturer.  With our online business, we were dealing with two vendors when we really started to kick things into gear about six years ago when MC and I got married and she was able to take on order fulfillment.  Now we deal with about 12 different vendors.  Three are wholesale houses and the rest are dealing direct with the manufacturers.  It's made a huge difference in our profit margins as well as our product mix and in some cases improving products and having new products made when there has been a need and no one else was making it.

The quality of parts coming out of China is vastly better than 10 or 15 years ago, we only have some Chinese parts we stock as one of the wholesalers owns the plant in China so they run a pretty tight ship on QC.  India still has a ways to go on some items and metallurgy, I try to avoid Indian products at all costs.  I don't tolerate "good enough" as I deal with people restoring and building antique motorcycles.  What I sell has to fit and look like an OEM part.  We've also got a few cottage industry shops in the US which make really good parts and they have been very receptive to our input when things can be improved.

At least in our business, there's really good parts coming out of Europe.  That's been more challenging to track down the manufacturers as they are cottage industry shops and most don't have web sites, at least not in English.  As we've grown that's also brought a few of these shops to our doorstep wanting to sell to us.  We've gone from cataloging about 400 line items to 1650 in two years.  I've got about 150 more to finish photographing and getting on line then I think our biggest expansion period is over, it will be a matter of adding items as they become available rather than trying to get 200 more added per quarter.

After all, we are supposed to be in our "working retirement" out here in Cimarron and we stay pretty darn busy!

[TulsaGoldenHurriCAN]

I was curious, so pulled some numbers to see how bad the apocalypse from online sales was...correct my interpretation as you deem fit.  Brick and mortar retail obviously faces competition from online sales.  But I think the excuse is over simplified by finding the most obvious scapegoat.

2012 Retail sales were $4,296,636,000,000.  In 2017 total sales are $5,081,553,000,000 on a fairly steady growth curve at 3-5%.  A disproportionate amount of that growth is now going to online sales, but it appears brick and mortar is at least holding steady.

Online sales account for ~7.5% of all retail sales and is expected to rise to 10% by 2020.   Even if online sales consumed 0% in 2012 and 10% in 2017, there would still be more brick and mortar spending in 2017 than 2012 (really it was closer to 5% and 8.5%).   2008 is the one year on record where we can be certain brick and mortar sales dropped as a group, but by 2011 sales were above where they had been prior to the mortgage/banking/financial crash.

I certainly understand that few anticipate booming growth in retail, particularly brick and mortar.  But when 90% of goods are expected to bought in physical locations and the market is seeing low but steady growth, the death knell blaming online sales seems like an oversimplified explanation. 

Monthly retail sales:
https://www.census.gov/retail/marts/www/adv44000.txt

Long term trend line:
https://tradingeconomics.com/united-states/retail-sales-annual

Additional insights including online sales #s:
https://www.emarketer.com/Article/US-Retail-Sales-Near-5-Trillion-2016/1013368
https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

Many of the retailers closing are blaming it on online sales and difficulty competing with Amazon specifically. Over-saturation of retail must be an additional factor, but online sales is in fact a large(r) factor and retail is still in its infancy. This is the cusp of online sales as they only made up a tiny fraction of all retail, just 8.4% in the last quarter available. What happens when that reaches 20% down the line?

We are in a big economic boom and historically, retail typically grows when the economy does like this so of course 2017 sales should be much higher than in 2012. The fact that 2017 was a record for retail closures and that more closed than opened and many major chains closed. Sure, over-saturation is a huge deal but the increased global competition and future growth of online sales will doom many more stores, especially high-overhead stores which serve markets easily taken over by online sales. A 1.6% increase to 10% may not sound like much, but when you're talking about $5.48 TRILLION, that is a huge change, but it is supposed to grow much higher than that. 2017 is just the tip of the iceberg.

[cannon_fodder]

I was not  trying to imply that online sales are not an issue.  I just don't think they are THE issue.  Essentially, the affect of online sales seems to be it is slowing brick and mortar growth and harming speculation on rapid brick.

But I also think the follow have an impact:

- Over building retail
Small example: Tulsa Hills is a minor component of overall retail growth in the last decade, has the population grown to match the new retail?  North America has about 5 times more retail space per-capita than Europe.  That is inefficiency that a market usually gets around to correcting sooner or later:


- Middle class wage stagnation
This boom is raising confidence and overall wealth (housing, retirement accounts) but not doing much for middle class wages.  Plus, much of the "boom" was clawing our way out of the hole the banking meltdown caused.   Many families don't actually have extra cash to spend, they have about $2-3k more per year to spend than they did in 2007... we hit a high note in 2012, crashed, clawed our way back in 2015, and have been flat ever since.

From 1992 to 2002 the rise was $6-7K.  Growth in disposal income results in a boom in retail sales, not an increase in overall wealth (such as stock market and real estate, which is disproportionately enjoyed by wealthy people unlikely to increase consumption anyway).
https://fred.stlouisfed.org/series/A229RX0

- Individual resistance to increase spending even as economic outlook improves (just 10 years ago many people felt confident and were wiped out)
The increase in consumption (correlated to retail sales) seems funded this time by decreased spending and less on borrowing.  Our savings rate has dropped from a spike of 11% in 2012 to 2.4% today.  Americans are spending 97.6% of every dollar they earn just to maintain their current level of spending. But for a valley in 2005, this is a record low for savings.
https://fred.stlouisfed.org/series/PSAVERT

- Americans are not taking on as much debt
Debate if it is because they can't get credit or because they learned a lesson, but Americans are taking on less debt.  A 30% decrease in household debt load since 2007.  You can also debate if it is good or bad for the nation, but it is probably bad for retail sales.
https://fred.stlouisfed.org/series/TDSP

- Unrealized gains may not benefit retail sales
As property values rise, property owners have more wealth... but most do not have more money to spend.  If you rent or are trying to buy, you certainly don't have more to spend.  Additionally, if the market is going up your retirement account has more money --- but you can't spend that.  If you have another investment account, it can be hard to liquidate assets during a boom...lest you miss out on even more profits.  The 500 wealthiest Americans saw their net worth increase an average of $2 Billion dollars, but they aren't likely to increase spending $1 because of that... and neither is John Q.  He may take out home equity lines or sell some assets and consume more, but the affect is not as great as one might think.

[TulsaGoldenHurriCAN]

I was not  trying to imply that online sales are not an issue.  I just don't think they are THE issue.  Essentially, the affect of online sales seems to be it is slowing brick and mortar growth and harming speculation on rapid brick.

But I also think the follow have an impact:

- Over building retail
Small example: Tulsa Hills is a minor component of overall retail growth in the last decade, has the population grown to match the new retail?  North America has about 5 times more retail space per-capita than Europe.  That is inefficiency that a market usually gets around to correcting sooner or later:


- Middle class wage stagnation
This boom is raising confidence and overall wealth (housing, retirement accounts) but not doing much for middle class wages.  Plus, much of the "boom" was clawing our way out of the hole the banking meltdown caused.   Many families don't actually have extra cash to spend, they have about $2-3k more per year to spend than they did in 2007... we hit a high note in 2012, crashed, clawed our way back in 2015, and have been flat ever since.

From 1992 to 2002 the rise was $6-7K.  Growth in disposal income results in a boom in retail sales, not an increase in overall wealth (such as stock market and real estate, which is disproportionately enjoyed by wealthy people unlikely to increase consumption anyway).
https://fred.stlouisfed.org/series/A229RX0

- Individual resistance to increase spending even as economic outlook improves (just 10 years ago many people felt confident and were wiped out)
The increase in consumption (correlated to retail sales) seems funded this time by decreased spending and less on borrowing.  Our savings rate has dropped from a spike of 11% in 2012 to 2.4% today.  Americans are spending 97.6% of every dollar they earn just to maintain their current level of spending. But for a valley in 2005, this is a record low for savings.
https://fred.stlouisfed.org/series/PSAVERT

- Americans are not taking on as much debt
Debate if it is because they can't get credit or because they learned a lesson, but Americans are taking on less debt.  A 30% decrease in household debt load since 2007.  You can also debate if it is good or bad for the nation, but it is probably bad for retail sales.
https://fred.stlouisfed.org/series/TDSP

- Unrealized gains may not benefit retail sales
As property values rise, property owners have more wealth... but most do not have more money to spend.  If you rent or are trying to buy, you certainly don't have more to spend.  Additionally, if the market is going up your retirement account has more money --- but you can't spend that.  If you have another investment account, it can be hard to liquidate assets during a boom...lest you miss out on even more profits.  The 500 wealthiest Americans saw their net worth increase an average of $2 Billion dollars, but they aren't likely to increase spending $1 because of that... and neither is John Q.  He may take out home equity lines or sell some assets and consume more, but the affect is not as great as one might think.

Ok fair enough. But in the future, online retail will drastically increase and decimate brick and mortar retail as we have known it and it's still in its infancy.

You could argue that Europe has very low rates of retail space because of less space overall, with far less space to spread out and much higher density in cities. US definitely has a more consumer-oriented society. Americans love to shop overall, but they will get more and more comfortable with shopping online and it is quite inevitable that online sales will go up and become even more user-friendly and convenient while brick and mortar will become more difficult for businesses.

[heironymouspasparagus]

Many of the retailers closing are blaming it on online sales and difficulty competing with Amazon specifically. Over-saturation of retail must be an additional factor, but online sales is in fact a large(r) factor and retail is still in its infancy. This is the cusp of online sales as they only made up a tiny fraction of all retail, just 8.4% in the last quarter available. What happens when that reaches 20% down the line?

We are in a big economic boom and historically, retail typically grows when the economy does like this so of course 2017 sales should be much higher than in 2012. The fact that 2017 was a record for retail closures and that more closed than opened and many major chains closed. Sure, over-saturation is a huge deal but the increased global competition and future growth of online sales will doom many more stores, especially high-overhead stores which serve markets easily taken over by online sales. A 1.6% increase to 10% may not sound like much, but when you're talking about $5.48 TRILLION, that is a huge change, but it is supposed to grow much higher than that. 2017 is just the tip of the iceberg.

I kinda suspect 20% (maybe 25?) will be a top end for online.  Several of the kids are doing a LOT of online and even with that, I see them still going to the store to look around, try stuff on, just wander around looking for the next 'impulse' buy, etc.  They are probably still less than 25% after going 'all in' on it.   One even has scheduled Amazon grocery delivery to the house - works VERY well for her cause of so much job travel and lets her kids still get food to the house.  Even that is still well under 50% of groceries, so her neighborhood Schnuck's is still cruising along just fine!  (Some of the delivery comes from there, too)

I have been forced to buy quite a bit online that I just can't get in same time frame from store.  Works ok, but really don't like the wait - I like immediate gratification!  And being able to pick it up and look at it, read the package, etc.  My online will not likely ever get above 20% - and a lot of that will be deliver to store so I can go pick it up.  Big thing there is if a problem, I don't have to touch return shipping at all. 

[TheArtist]

And again, online sales bring down the profit margin of brick and mortar sales.  We have to compete with online and so have to bring our prices down.  You may still be buying 75% or more of your stuff from a brick and mortar, but the brick and mortar isn't making as much off those sales. 

One company we used to get items from I saw their products for sale online going for just a dollar or two more than what we got the for wholesale.  And these were like items that were $50- several hundred dollars.  The online store doesn't have to pay rent or employees etc. all they do is act as a "portal", make a buck or two off the item and tell the wholesaler where to ship the items. Its a tough job to purchase a $50 or more item, have it shipped to my store, unpack it, sit on a shelf taking up space, and then sell it for a dollar or two more. 

[TulsaGoldenHurriCAN]

I kinda suspect 20% (maybe 25?) will be a top end for online.  Several of the kids are doing a LOT of online and even with that, I see them still going to the store to look around, try stuff on, just wander around looking for the next 'impulse' buy, etc.  They are probably still less than 25% after going 'all in' on it.   One even has scheduled Amazon grocery delivery to the house - works VERY well for her cause of so much job travel and lets her kids still get food to the house.  Even that is still well under 50% of groceries, so her neighborhood Schnuck's is still cruising along just fine!  (Some of the delivery comes from there, too)

I have been forced to buy quite a bit online that I just can't get in same time frame from store.  Works ok, but really don't like the wait - I like immediate gratification!  And being able to pick it up and look at it, read the package, etc.  My online will not likely ever get above 20% - and a lot of that will be deliver to store so I can go pick it up.  Big thing there is if a problem, I don't have to touch return shipping at all. 

For me that percentage is more like 80%, and if you include craigslist, Let Go, etc, it is higher. We have to buy quite a few things for our business (like appliances which we always get online). I rarely go to brick and mortar and it is usually places that just don't exist online like 2nd hand furniture shops and craft/flea-market places. Also go to brick and mortars to see any clearance. I go to small local-Tulsa-shops like Ida Red, Decopolis, Box Yard, etc just to support those shops and typically buy unique Tulsa-themed stuff, but for most things I prefer online. I don't mind waiting and try to plan ahead and make sure I really want/need something.

Now that we get groceries online too, going to a store is more of a novelty. I can't imagine using online for only 20% and while we  might be a far-outlier at the moment, I can't imagine others turning down the convenience of having everything hand delivered to your door so you don't have to drive/pick/wait/buy/carry-out/unload and all at a lower price.

[Conan71]

For me that percentage is more like 80%, and if you include craigslist, Let Go, etc, it is higher. We have to buy quite a few things for our business (like appliances which we always get online). I rarely go to brick and mortar and it is usually places that just don't exist online like 2nd hand furniture shops and craft/flea-market places. Also go to brick and mortars to see any clearance. I go to small local-Tulsa-shops like Ida Red, Decopolis, Box Yard, etc just to support those shops and typically buy unique Tulsa-themed stuff, but for most things I prefer online. I don't mind waiting and try to plan ahead and make sure I really want/need something.

Now that we get groceries online too, going to a store is more of a novelty. I can't imagine using online for only 20% and while we  might be a far-outlier at the moment, I can't imagine others turning down the convenience of having everything hand delivered to your door so you don't have to drive/pick/wait/buy/carry-out/unload and all at a lower price.

For our personal needs we cannot source locally, we have to rely on Amazon, Target or Wal-Mart online, etc.  My wife buys pet food from Chewy. 

We have a sundry store, grocery market co-located with a Shell station, a Family Dollar, and a Quick Mart type location which is also the village liquor store.  We try to support the local businesses as much as possible, but there are things we simply cannot get from a grocery store which is in maybe a 4000' shell or a sundry store which is even smaller.

The closest Lowe's or Home Depot is Santa Fe or Pueblo.  The closest Wal-Mart stores are Trinidad, Co. or Taos.  It was a bit of an adjustment after having the offerings of a Reasor's, Target, Lowe's, Wal-Mart Market, Big Lots, etc. within a mile radius of our last Tulsa home.  When we are headed to a population center for any reason, we try to plan several stops while we are in the area. 

Does it ever get a bit frustrating when you realize the closest place with that plumbing part you need is 25 to 40 miles away?  Sure.  But on-line retail has made it a whole lot easier than it would have been 20 years ago.

[Townsend]

For our personal needs we cannot source locally, we have to rely on Amazon, Target or Wal-Mart online, etc.  My wife buys pet food from Chewy. 

We have a sundry store, grocery market co-located with a Shell station, a Family Dollar, and a Quick Mart type location which is also the village liquor store.  We try to support the local businesses as much as possible, but there are things we simply cannot get from a grocery store which is in maybe a 4000' shell or a sundry store which is even smaller.

The closest Lowe's or Home Depot is Santa Fe or Pueblo.  The closest Wal-Mart stores are Trinidad, Co. or Taos.  It was a bit of an adjustment after having the offerings of a Reasor's, Target, Lowe's, Wal-Mart Market, Big Lots, etc. within a mile radius of our last Tulsa home.  When we are headed to a population center for any reason, we try to plan several stops while we are in the area. 

Does it ever get a bit frustrating when you realize the closest place with that plumbing part you need is 25 to 40 miles away?  Sure.  But on-line retail has made it a whole lot easier than it would have been 20 years ago.

You and the mrs heading into town?