Part two in a 3-part blog series.
In many ways the millennial retail revolution is three years behind similar attrition within the women’s apparel industry. There, a pre-2008 economic boom and still-strong traditional mall shopping audience would lead to what would eventually become an over-build of new stores. Retailers such as Coldwater Creek, Chico’s, J.Jill and others all embarked on new store tears in the late 1990s in the midst of the housing boom where consumers had more disposable income than perhaps ever before. That overextension led to supply not being in synch with demand. Between 2014 and 2015, Coldwater Creek filed for bankruptcy along with Ashley Stewart and Loehmann’s. Chico’s did not file for bankruptcy yet closed 120 stores. J. Crew and Gap continued their struggles as well.
The Amazon Factor
And then there is Amazon – the arch nemesis of the traditional bricks and mortar retailer. Let’s look at a few numbers. First, market value in 2016 for top traditional retailers:
- Sears: $1.1B
- Nordstrom: $8.3B
- Target: $40.6B
By stark contrast, Amazon’s market value in 2016 was an astronomical $355B.
When examining apparel sales, consider that in 2012 sales at Macy’s were 5x greater than those of Amazon. In 2016, apparel sales at Macy’s were $22B while Amazon is expected to sell $30B in just apparel in 2017.
Adding further insult to injury is the convenience offered by Amazon (or any online retailer). Amazon is in beta for Prime Wardrobe, which allows Prime members to ship clothing and accessories to their home to try on for free. Members must choose at least three items to ship and they have seven days to choose the products they would like to keep. The consumer receives a 10 percent discount if he or she chooses to keep three or four items from the order and 20 percent for keeping five or more. Basically, keep what you want and send back what you don’t – all from the comfort of your home (or wherever).
My, how times have changed – not just for traditional “bricks and mortar” retailers but also for malls and landlords. Malls are seeing their vacancy rates increasing as their tenants experience declining sales. One-time stalwart anchors such as Sears, Macy’s, and J.C. Penney are closing locations across the country, causing the retailers left in the wake of the store closures to invoke co-tenancy clause violations which result in yet even lower revenue for the mall.
Matthew Mason is a Managing Director, Conway MacKenzie. Lauren Leach is a Director, Conway MacKenzie. Together they lead the firm’s real estate practice and specialize in distressed real estate; both managing large CMBS portfolios and malls, as well as working directly with retailers.