Shopping in a Digital World

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Shopping in a Digital World

As the economy begins to rebound, retail sales are racing to historic highs, approaching $5.5 trillion last year.  And yet, at the same time, retailers are shuttering stores, leaving gaping vacancies in once-bustling malls.

According to a report in USA Today, in the first quarter of this year alone:1

  • JCPenney is closing 138 stores.
  • Sears Holding is closing 108 Kmart and 42 Sears stores.
  • HH Gregg announced it is filing for Chapter 11 bankruptcy and closing 88 stores and three distribution centers.
  • Macy’s is closing 68 department stores.
  • MC Sports is closing 68 sporting goods stores.
  • Gander Mountain is closing 32 outdoor equipment and apparel stores.
  • GameStop is closing 190 video gaming stores.
  • Radio Shack is closing 187 electronics stores.
  • Payless is closing 500 stores

Combined, the retailers are closing 1,421 stores.  As USA Today asked, “Is 2017 the death of retail as we know it?”

The answer is both yes and no.  Retail in the form of physical stores is not quite dying; instead, it’s going through a transformation that will change the way that consumers shop.  Simultaneously, digital retail sales are taking over an increasing share of the overall retail market—and many of the technologies that will transform retail are just starting to be implemented, so the real changes won’t happen until about 2020.

The reason for the failures of bricks-and-mortar retailers is obvious:  More people are doing more shopping online.  In 2000, at the peak of the dot-com boom, e-commerce accounted for 1 percent of retail sales, or $27 billion.  By 2016, online shopping captured 8 percent of the retail market, or almost $400 billion.

The behemoth of the digital retail space is Amazon, which generated 43 percent of online sales in 2016, up from 25 percent as recently as two years earlier.  According to an analysis by Business Insider, Amazon grew its sales so dramatically as a result of big gains in online sales of electronics, home and kitchen products, clothing and accessories, groceries, and health and beauty products.2  Amazon’s Prime service, which offers free two-day delivery for a $99 annual fee, is so popular than one in five American consumers subscribes to the service.

It’s not just that consumers are choosing on-line retailers over traditional retailers; investors overwhelmingly favor digital companies, which can offer lower prices thanks to reduced overhead...

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