Retail Slump Shows Amazon Effect
. . . others are not. Retail is accelerating towards a new paradigm, there is no rest for the weary here.
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The old line stores overlook Amazon, Walmart, and the others at their peril.
"Department stores are in a funk and executives at some of the country’s biggest chains are struggling to explain why consumers aren’t spending more time and money in their stores.
But analysts have a familiar culprit: Amazon.com Inc."
There are no protected markets any longer. Amazon, Walmart, and many more are changing their business models slightly to creep into ever more diverse markets.
"Analysts, however, argue that Amazon, which has made an aggressive push into apparel and fashion, is starting to take significant market share from traditional department stores. In a research note Thursday, Morgan Stanley analysts estimated that Amazon already accounts for about 7% of the overall U.S. apparel market and will reach 19% by 2020. By their estimates, the online superstore is already selling more apparel than all U.S. retailers but the biggest, Wal-Mart Stores Inc."
This is not limited to Amazon, and the bloodletting will only worsen with time. These are moribund businesses mostly because the model is old, and stodgy. In addition, we saw a huge amount of low cost capital and debt enter the system over the past decade or so, and the "mall" model has become saturated. So much so, that it has depressed the productivity numbers in the US economy. This model needs a serious correction, and it will likely take a 15-20% reduction to create the necessary level of correction.
The stores which see this and act early will likely remain successful, the ones who wait may not. The new model also requires these old brick and mortar "mall" stores to increasingly expand online sales, and begin to, or expand competition in the low cost/fast shipping market. Amazon may have created this market, but others like Walmart are now beginning to hammer it home. This is now a necessity, not a luxury in retail.
"For the first quarter ended April 30, Kohl’s reported a profit of $17 million, down from $127 million a year earlier. Sales fell 3.7% to $3.97 billion, while sales at Kohl’s stores open for at least a year declined 3.9%.
Nordstrom’s earnings for the same period were $46 million, compared with $128 million a year earlier. Total sales rose 2.5% to $3.2 billion, but sales excluding newly opened or closed stores fell 1.7%.
As traditional retailers have struggled, chains that sell name brands at discount prices have been gaining share. Sales at Nordstrom Rack stores, the company’s off-price chain, open for at least a year rose 4.6% in the period, but much of that growth came from orders placed online.
Ralph Lauren Corp., which sells much of its clothes at department stores, reported Thursday that its profit plunged 67% in its latest quarter and revenue fell 1% to $1.9 billion."
The race is always to the swift. But it appears that these runners missed the starting gun.