Boarded-up shops are a common sight in cities across the country as Macy’s, Sears and JCPenney struggle and Credit Suisse downgrades the retail sector
Canal Street was never a high-end retail experience. But, like many streets in New York City and in cities across the US, it is becoming increasingly desolate.
Boarded-up stores line the thoroughfare that bisects much of lower Manhattan. Many stores that are still open for business also display signs that read “for lease” or “for rent”.
“It’s not Trump,” said one downcast store-owner recently. “It’s not the economy. Something else is happening. People aren’t spending.”
This week, Credit Suisse downgraded the retail sector, saying the outlook had become bleaker than it had anticipated in large part because of events in Washington and through discussion of “whether we think the risks of the border adjustment provision in the House corporate tax reform proposal are fully reflected in apparel and retailing stocks”. Other analysts have shown similar pessimism.
Earlier in the month, Richard Hayne, chief executive officer of Urban Outfitters, equated the woes facing retail in 2017 to the housing market of 2008. Hayne traced the problems to over-expansion in the 1990s and early 2000s, noting that the US now had six times the retail space per capita of either Europe or Japan.
“The US market is oversaturated with retail space and far too much of that space is occupied by stores selling apparel,” he said, anticipating that retail retrenchment would continue “for the foreseeable future and may even accelerate”.
Urban Outfitters, a Philadelphia, Pennsylvania-based company that operates roughly 200 locations for stores under its own name and Anthropologie, said that despite sales declines in the single figures, it still planned to open 15 new stores in North America this year. That figure is a drop on previous years but looks rosy next to mass store closings recorded by rivals.
In the past several months, Macy’s has announced it will close 63 stores; Sears, 150; The Limited, 250; BCBG Max Azria, 120; Guess, 60; American Apparel, 104; Abercrombie & Fitch, 60; JCPenney, up to 140.
While retail executives are keen to state they do not plan to abandon bricks-and-mortar retail entirely, many now tend to see it on equal terms with online operations. Main Street, hollowed out by web-based competition, is increasingly viewed as a tool to be used by consumers “showrooming” – browsing – before buying online for less.
The cost in jobs is stark, with Macy’s saying it expects to see 10,000 workers laid off, including 6,200 managers, or 17% of executives.
“We have been planning this very carefully,” said Jeff Gennette, Macy’s president and new CEO, announcing the cuts. “This is not something we did quickly.”
In some areas of Manhattan, retail rents have declined 10-15%. But it has come too late for many retailers. The cycle of the change is apparent across much of downtown, with chains that pushed out smaller independent stores now closing too.
There is no immediate solution, said Justin Levinson, a former reporter who began creating an interactive map of vacancies last year. He believes landlords with large portfolios have been unable to drop prices significantly without experiencing a ripple effect, so they often prefer to take a loss on one property rather than drop prices across the board.
Simply blaming landlords for pushing rents too high is an overly simplistic explanation for the malaise, however. This is not urban blight in the sense that neighborhoods are abandoned, but something else – it is high-rent blight.
“The retail landscape has changed,” Levinson said. “It’s many factors coming together to create increasing instability and retailers are struggling to adapt.”
The result, Levinson said, is “a weirdly disconnected environment” that contributes to an overall sense of loss in a neighborhood that some describe as akin to the effects of habitat loss through climate change.
“The vacancy changes are similar to gentrification but not exactly,” he said. “Even if you put a Starbucks in, somebody got a call [there] they’d got the job or they kissed their girlfriend for the first time [there]. Some kind of social memory is created. But an empty storefront removes the possibility of any kind of interaction.”
A recent Synchrony Financial reportentitled The Future of Retail predicted that instant gratification coupled with a higher degree of tech-driven personalization would drive consumer behavior and retail industry through to 2030.
The report said that the future of bricks-and-mortar will center on authentic brand experiences: more than half of consumers polled said they looked forward to an amalgam of in-store and entertainment experiences.
“Brick-and-mortar stores will exist in the future but there will be fewer of them,” the report predicted. “A new model of delivering not only products, but also genuine brand experiences is emerging.
“People are social by nature and will be drawn to gathering places to share ideas and be entertained. It’s not just about making money. It’s about building trust. Retailers who tap into this trend will be rewarded.”
That means, for instance, that stores and banks could end up offering more than just retail or banking services and come to add some aspect of community cohesion. Perhaps crucially, the report found that brands will have to more clearly enunciate their reason for being.
“Shoppers are reaching a tipping point around American consumption,” it read. “Feelings of angst about acquiring too much ‘stuff’ is driving a shift toward purchasing experiences rather than things.”
Along with concern for the environment, the report said, “retail must streamline and consolidate in the future”.
Along Canal Street and up through SoHo, such changes in sentiment are yet to be articulated. Levinson predicted change, but said things could get worse before they got better.
“People’s discontent over the issue is useful only if we can discuss and come up with a solution,” he said. “If there was a silver bullet, we would have done it.
“There’s a bunch of things of play, but even just acknowledging that this is a problem brings us closer to figuring out what to do next.”
♦ The Guardian