Retail Apocalypse

The retail apocalypse refers to the closing of a large number of American retail stores beginning in 2016. Over 4,000 physical stores are affected as American consumers shift their purchasing habits due to various factors, including the rise of e-commerce.

Major department stores such as J.C. Penney and Macy’s have announced hundreds of store closures, and well-known apparel brands such as J. Crew and Ralph Lauren are struggling with profitability. Of the 1,200 shopping malls across the US, 50% are expected to close by 2023.

The retail apocalypse phenomenon is related to the middle-class squeeze, in which medium-wage consumers experience a decrease in income while costs increase for education, healthcare, and housing. ‘Bloomberg’ stated that the cause of the retail apocalypse ‘isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms.’ ‘Forbes’ has claimed that media hype is over exaggerated, and the sector is simply evolving.

Since at least 2010, various economic factors have resulted in the closing of a large number of American retailers, particularly in the department store industry. Sears, which had 3,555 stores in 2010, was down to just 1,503 as of 2016, with more closures scheduled. Sears also owns the retail chain Kmart Corporation, which operated 2,171 stores at its peak in 2000, a number that has since dwindled to less than 750 with further closures planned.

The term ‘retail apocalypse’ began gaining widespread usage in 2017 following multiple announcements from many major retailers of plans to either discontinue or greatly scale back a retail presence, including companies such as H.H. Gregg, Family Christian Stores, and The Limited all going out of business entirely. ‘The Atlantic’ describes the phenomenon as ‘The Great Retail Apocalypse of 2017,’ reporting nine retail bankruptcies and several apparel companies having their stock hit new lows, including that of Lululemon, Urban Outfitters, and American Eagle.

The main factor cited in the closing of retail stores in the retail apocalypse is the shift in consumer habits towards online commerce. Holiday sales for e-commerce were reported as increasing by 11% for 2016 compared with 2015 by Adobe Digital Insights, with Slice Intelligence reporting an even more generous 20% increase. Comparatively, brick-and-mortar stores saw an overall increase of only 1.6%, with physical department stores experiencing a 4.8% decline. Another factor is an oversupply of malls, as the growth rate of malls between 1970 and 2015 was over twice the growth rate of the population.

In 2004, Malcolm Gladwell wrote that investment in malls was artificially accelerated when the U.S. Congress introduced accelerated depreciation into the tax code in 1954. Despite the construction of new malls, mall visits declined by 50% between 2010-2013 with further declines reported in each successive year. A third major reported factor is the ‘restaurant renaissance,’ a shift in consumer spending habits for their disposable cash from material purchases such as clothing towards dining out and travel. Another cited factor is the ‘death of the American middle class,’ resulting in large-scale closures of retailers such as Macy’s and Sears, which traditionally relied on spending from this market segment.

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