By now you’re probably used to the boom-bust economic cycle of retail. Certainly retail becomes a big story during the ramp up of the holiday season. Lots of boom. Lots of questions: Will your packages make it that last mile in time for Christmas? Can you pick up your packages at drop-off locations like Walgreens? Then, follows the reverse logistics stories.
Now, cyclically, at least for the last couple of years, comes the flood of “retail apocalypse” stories. Look at all the stores closing shop. What does it mean for the economy? What does it mean for our culture? What does it mean for commercial freight and logistics? Doom and gloom after the boom.
What do the bankruptcies mean?
No surprise, the e-commerce trend has entrenched itself into the lives of consumers — for better or worse — and there’s no turning back now. We want the world and we want it “immediately if not sooner.” Another round of retailers this year has filed for bankruptcy.
According to CB Insights, the retail bankruptcies fall into a few themes:
Decline of physical retail –- With the shift to e-commerce, fewer and fewer customers are shopping at big-box physical retailers and malls. Additionally, many of these physical retailers have lost the cache they once had as new direct-to-consumer brands with a hyper-focus on specific products have taken off.
Digital laggards –- Many big-box retailers either failed or were too late to establish an online presence. With the rise of Amazon and digitally native direct-to-consumer brands, retailers that don’t adapt quickly enough inevitably fail to compete.
Mounting debt –- Crippling debt, fueled by post-financial crisis leveraged buyouts by private equity firms, has forced many retailers to declare bankruptcy.
Importantly, bankruptcy doesn’t always result in the death of a company. Many retailers use bankruptcies to restructure internally with positive outcomes. However, some of the companies to go bankrupt this year are on their second bankruptcy.
Still, if you’re supplying a company that is at risk of going bankrupt, it’s important that your company takes certain step to protect itself. Don’t assume that there’s a court-ordered payment down the line that will help make your company whole. Instead, insulate yourself against potential losses before your customer goes belly-up.
Why is retail downsizing?
No doubt, there is a transformation happening with physical retail, but the sky is not falling. It's just another part of the story. The ones who truly go out of business have usually failed to adapt to the times, others are victims of changing tastes and trends. For instance, of the 5,300 store locations that closed throughout the US in 2017, apparel and electronics stores account for nearly half of the closures, according to JLL research.
The thing perhaps most curious about the industry downsizing, is that the GDP has been growing for eight straight years, gas prices are still relatively low, unemployment is under 5 percent, and the two years have been excellent years for wage growth, particularly for middle-and-lower-income Americans.
The overall health of retail is actually solid. Spending continues to grow steadily. But several macroeconomic trends are driving the push toward a smaller store base — including the rise of e-commerce, the over-supply of malls, and shifting demographics as young Americans are flocking to cities — have conspired to change the face of American shopping.
Cowen and Company research also finds that spending on clothes is down — its share of total consumer spending has declined by 20 percent this century. Meanwhile, a new series of cultural factors play into other shifting values.
What's trending up?
Travel is booming. Hotel occupancy is booming. Domestic airlines have flown more passengers each year since 2010, and last year U.S. airlines set a record, with 823 million passengers, according to The Atlantic. The rise of restaurants is even more dramatic. Since 2005, sales at “food services and drinking places” have grown twice as fast as all other retail spending. In 2016, for the first time ever, Americans spent more money in restaurants and bars than at grocery stores.
Another sign of potential adaptation is emerging in the form of autonomous. Once autonomous vehicles are cheap, safe, and plentiful, retail and logistics companies could see these vehicles become stores. Self-driving vehicles could make shopping space nearly obsolete in some areas.
So what's it all mean for freight?
That may sound exciting, but generally speaking roadways are already growing in density. Pressure on last mile delivery will continue to explode due to several factors: (1) increasing urban congestion often due to agin infrastructure, (2) lack of warehouse space, and the (3) consumer expectation of cheap (or free) and fast shipping.
While it may mean greater boom times than ever before for carriers, in the short-to-medium term it's getting more difficult to execute on-time deliveries. As a result, the much-discussed emerging technologies are looking to drones and e-trucks for subverting the time and cost challenges.
Not so fast, says the Teamsters union, comprised of some 260,000 members. They're currently negotiating a new contract with UPS. The current one is over this July. The powerful union wants to stop UPS from using new technologies, such as drones and autonomous vehicles, which the logistics company has been testing.
That's just one of the negotiating points on the table for one of the nation's largest collective bargaining agreements, according to a new report in The Wall Street Journal. They also want UPS to hire another 10,000 members, and to halt deliveries after 9 PM even during November and December.
Who will be the winners in the current landscape of the decline of physical retail? The story of 2018 is unfolding as we speak, but it's not an apocalypse. More like the beginnings of a transformation, and logistics companies are becoming ever more crucial.
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