OPINION: Commerce May Be Moving Online, But Brick-And-Mortar Is Still Thriving

Eli Lehrer President, R Street Institute
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As the one-time strip-mall staple Payless Shoes closes all 2,100 of its stores, vacancy rates in traditional enclosed malls rise, and formerly dominant retailer Sears continues its slow-motion slide toward liquidation, many observers insist that a “retail apocalypse” is upon us, poised to change the structure of American life in deep and permanent ways. But a closer look at the realities on the ground indicates that this “apocalypse” is a much smaller deal than many might imagine.

Quite simply, most existing retail will never move fully online, and the movement of some retail to the internet will be a lot less disruptive to jobs and landscapes than it might appear at first blush.

Let’s start with existing retail. Of the nation’s 20 largest retailers, two — Amazon and Apple — are tech-oriented firms that will do better as more commerce moves online. Others have business models that really can’t operate cost effectively over the internet. Two of the retailers are pharmacy chains selling things that people will want to pick up immediately. Two more are home improvement chains selling things like lumber that are nearly impossible to ship long distances in a cost-effective manner.

Of the rest, six are fresh grocery chains that sell items like ice cream, fresh meat and fruit, which can’t practicably be shipped from centralized warehouses to homes.And even if everyone ordered groceries online — something that’s becoming increasingly common in affluent areas — there would still need to be grocery depots in every neighborhood to stock these kinds of items. It’s hard to imagine that these would be much different from existing stores.

Similarly, the three discount/club retailers on the list — Walmart, Costco and Target — all have fresh grocery selections as well as pharmacy counters selling things that aren’t easy to sell online. Each of these retailers also has a sizeable warehouse-based e-commerce business, and all three are already making changes to facilitate online purchasing. Target, for example, is retrofitting 1,000 of its stores with special “ease” entrances designed to facilitate e-commerce pickups.

As for those businesses that are closing physical retail outlets, some are already well on their way to becoming e-commerce companies: One-time mall staple Land’s End, for instance, now does a full 85 percent of its business online. Meanwhile, well-known retailers like Nordstrom, Kate Spade and Urban Outfitters have managed to increase their e-commerce to more than 20 percent of their sales. A handful of other big retailers like TJX (which owns T.J. Maxx and Marshalls) seem to have found market niches — a messy “treasure hunt” of discounted clothes and homewares in the case of TJX — that probably can’t ever be replicated online. Business models like these probably won’t be affected by e-commerce.

Even retail jobs are not disappearing in a significant way. True, the total number of retail jobs has fallen slightly over the past year, but this seems to have more to do with a simple shortage of labor than anything else. With very low unemployment and retail worker productivity rising, the problem is not that the jobs don’t exist, but that it’s difficult to find people to do the work. In any event, the Bureau of Labor Statistics still projects some overall growth in the number of retail sales workers over the next decade.

In fact, this growth may be larger than many would expect, since much automated e-commerce retail does not actually eliminate jobs. Amazon’s Go convenience store in downtown San Francisco, for example, has two employees on duty at most times — the same number of employees on hand at the 7-11 a few blocks away. Amazon’s automated warehouses may be more efficient than anyone else’s, but they still are big enough to have made that company the second-largest private employer in America.

Meanwhile, the evidence on the ground indicates that in most places, the loss of retailers will not be very noticeable. Affluent, tech-heavy communities like Menlo Park, California, and Reston, Virginia, may have broadband at every home and e-commerce packages on every doorstep, but their strip malls and downtown centers are bustling.

Indeed, even though chains like Macy’s close a few stores to focus on stronger ones, store vacancy rates are not rising nationally. Now that eating out consumes a majority of all food spending, much of this otherwise vacant space is being filled by new restaurants. In fact, fast casual eateries are projected to grow at a scorching 7 percent rate (the McDonald’s restaurant chain is already No. 14 on the list of the 20 largest retailers.) The growth in other experience-based businesses like family entertainment centers, indoor trampoline parks and movie theaters will likely make up another part of the difference as certain categories of retailers move online.

The nature of retail is changing and more purchases are being made online. But all-in-all, the retail “apocalypse” just doesn’t look like it will be a very big deal.

Eli Lehrer (@EliLehrerDC) is president and cofounder of the R Street Institute, a nonprofit, free-market think-tank headquartered in Washington, D.C.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.