The crisis in retail will outlast the next few booms

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

Interesting:

the crisis of retail seems unstoppable for numerous reasons:

Obviously e-commerce and the rise of digital retail giants Amazon and Alibaba are said to have ‘disrupted’ retail and changed consumer expectations. It is accused of destroying the old retail models. It may be true. However when it comes to groceries, online retail still only accounts for a relatively small part (between 5% and 15% depending on the country);

Internet has brought about new business models that transform ownership into services: rather than owning a car, you can rent a chauffeured car as a service; rather than owning the licence of a particular software, you use software “as a service”; rather than owning DVDs, you pay a monthly fee to access a catalogue of films which you can watch online, etc. Also many of the products that used to be tangible have become intangible and reproducible;

Macroeconomic trends are also to blame: the post-war boom years were fuelled by the rising purchasing power of a large empowered middle class who could consume more and more. By contrast, today’s middle classes have seen their purchasing power stagnate or decline over the last three decades. Higher income inequalities are not a good thing for retail because the super rich have a lower propensity to consume. Retail needs the middle classes to be richer because they have a higher propensity to consume. (A household that has a €20,000 annual revenue will spend it all. For that household, an extra €5,000 would also be spent, whereas an extra €5,000 added to a €150,000 annual revenue would be saved, not spent. That’s what’s known as the ‘propensity to consume’). Discount retail has therefore flourished in the past 30 years but the overall value of retail has not;

A shift in spending patterns is due to the densification of large urban centres. Storing food is increasingly costly: it requires space, equipment, and a car, which fewer people have in expensive cities. Indeed more urban populations tend to spend more on housing in denser cities, they rarely have a car and they have less room to store large amounts of food. The proportion of consumers with cars and multiple fridges has gone down. Furthermore, the more urban the population, the smaller the average household: there’s no need to store lots of food anymore. Singles can go for fresh food every day and have empty fridges. (Also the urge to store food tends to wane as the last generations that experienced hunger and rationing during the war are progressively dying out);

Shopping doesn’t generate status anymore: a lot of the products that provided status in the 1960s (cars, TV sets…) are now cheaper or just not built to last. In our throw-away culture, owning things doesn’t come with status. Throw-away items merely provide a quick fix. There is no need to buy more stuff to keep up with the Joneses. That’s not where you place your pride anymore;

Shopping has just become boring: the standardised mass-consumption experience of retail stands in sharp contrast with the personalised experience users have online. Algorithms help create an environment designed to cater to the specific needs and tastes of each user whereas supermarkets cater to masses of undistinguishable customers. Shopping is all the more perceived as boring as more and more fun activities are to be experienced online. In some ways, Instagram and Facebook time have replaced the weekly trip to the shopping mall. Increasingly few teenagers now choose to hang out with friends at the mall. Shopping is also less frequently listed as a “hobby” today;

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