The announcement by Wal Mart last week that the retailer will close over 100 stores is a fair gauge of the state of American retail.
Sales and earnings are down, and costs for labour are climbing. Macy’s, Nordstrom, and Sears are all limping along.
This downturn hasn’t been lost on Starbucks CEO Howard Schultz. In a quarterly earnings call Friday, Schultz laid out his thoughts on the current and future prospects for retail business.
“I think we said three years ago publicly that we began to envision that there would be a seismic change in consumer behaviour and that seismic change was due in large part to ecommerce and smartphone shopping,” said Schultz.
Schultz isn’t alone among executives talking about this trend. Amazon, a bellwether for online shopping, has begun to catch up to, and is expected to pass major retailers in terms of revenue over the past few years. Even some of the bog box CEOs have started admitting to the importance of mobile shopping.
Unlike other CEOs, however, Schultz not only pointed to the current issue, but also worried about the very future of retail.
“I think today in the headlines you’ve seen just in the last three weeks store closures of almost 50 Macy’s stores, 150 Walmart stores,” said Schultz, according to a transcript of the call. “You’ve got to ask yourself what’s going to happen to the future of many of those malls that are anchored by those big-box retailers.”
The threat is a growing one, since young people are starting to earn and spend more. The issue is, they’re spending more and more online.
This is in stark contrast to Simon Property Group CEO David Simon whose company owns 109 malls and 68 outlet centres around the US. According to Simon’s comments on an earnings call in October, he expects in-person retailers to be relevant for future generations.
“Again, I think the millennials offer great opportunity for us,” said Simon.
“They’re comfortable with the mall environment. And as their income grows and as they aged and have kids, I think they will be loyal mall shoppers, especially given the environment we’re creating.”
While Simon may not be worried, Schultz said that his company has taken drastic steps to get out in front of the change. Starbucks has invested in a strong mobile app and website to make online ordering easier.
According to Schultz the seismic wave is coming to retailers soon, and retailers should get in front of the curve.
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