How digitization in retail is having a domino effect on Macys, JC Penney and Sears
- Summary:
- The Amazon impact could well have a domino effect as mall based stores face closure. Is there a remedy in sight?
Earlier in the week, Derek duPreez reported that Wal-Mart is closing 269 stores, 154 of which are in the US. Although Wal-Mart was quick to point pout that it plans to open 300 stories around the world, the pattern is clear. Drop poor performers in favor of superstores where the consumer has a 'one stop shop' experience. The broader pattern is clear. From duPreez's analysis:
Amazon’s early investments in logistics, availability, speed and online presence are putting pressure on brands that have traditionally relied on a physical footprint to reach customers. Equally, Amazon’s investors are less concerned about early profit gains, favouring long-term growth, which is arguably not true for the likes of Walmart...
...In a Q&A, [Wal-mart] CEO McMillon made it clear that the closures were about focusing on a physical footprint that worked for the company, whilst making large investments in online to protect the future growth.
In short, Amazon has got Wal-Mart on the run and Wal-Mart is frantically retrenching to make up lost ground. But as the US retail bellwether adjusts, there is the potential for a domino effect when brand stores closures occur in retail malls.
Reports recently emerged saying that Macys, one of the US's oldest retail brands, plans to close 40 stores, many on the east coat, following weak holiday period sales. Alongside that, analysts are concerned that where Macys closes in mall locations, others will feel the chill wind of a domino effect.
According to analysts, US mall traffic has ratcheted back by as much as two thirds over the last 14 years as time pressure on consumers mean less tolerance to waiting in line to park and shop. Combine that with what looks like the unstoppable rise of Amazon and it is not hard to see how store closures are inevitable and far reaching. According to Hale Holden, a retail analyst at Barclays in New York
When a Macy’s leaves, traffic at that mall significantly slows down and it has a negative impact on other stores
J.C. Penney operates 19 locations at malls that are losing Macy’s stores, and Sears has 16. Those stores are all seen as 'at risk.'
Is there the likelihood of any relief? Not in the short term. From my perspective, each of these brands exhibits multiple problems and risks. Macy, which I know better than the others, seems to be in permanent sales offer mode but then when you go online, products are rarely available within 100 miles of my current location. It is a case of promise not matching reality, a fatal mix for any retailer, and a sure fire indication of a failing digital strategy.
It is becoming increasingly clear that where Amazon scores, and everyone else loses, is that Amazon has made it easy for both buyer and seller to meet and do business. Sellers can only offer their wares on Amazon when they have inventory. Combine that with a competitive marketplace that not only competes on the basic price but also on reputation plus delivery service and it is self evident that Amazon should be the logical first port of call for the savvy buyer. In that sense, Amazon is facilitating the classic 'as-a-Service' economy.
The large retail brands on the other hand have numerous supply chain and logistics problems. Until recently, the perceived wisdom was that Wal-Mart's advanced supply chain and logistics operations would allow it to operate efficiently in any location. That's clearly no longer enough for it to maintain its competitive position.
In the case of Macys, their woes are not restricted to physical availability. They also struggle with home delivery from mall based shops, largely because their distribution fleet is inflexible. Order a bed set on the right day and you'll get it delivered within 48 hours. Order on the wrong day and it may be two weeks before you see the goods. Staff on site do their best to keep the customer happy but that can't make up for a fundamentally broken logistics operation.
Time is running out for the major retailers. While those of us who observe these problems from a distance can easily opine that digitizing the business is the obvious remedy, it seems to me that long run issues that have been largely hidden from view are now surfacing as major obstacles to sustaining the brands. In short, the brand individual promises of Macys, Wal-Marts, JC Penneys are being undermined by an exposure to weaknesses that Amazon easily exploits. That makes any 'fix' much harder than it appears because the analysis suggests that every part of retail operations needs to be scrutinized.
Reliance on a well motivated customer facing staff just isn't enough.
Featured image credit: New Shopping Center © EyeMark, fotolia, image on story, from Domino II, Genesis live, 1992