The Death of Retail

Retail has been dear to me for my whole life. I did not realise it as a child, but it is in my blood. My dad ran a store and his dad ran many stores. My mum’s parents ran a sweet shop and a pub. I always enjoyed getting involved in small commercial events. When I joined Shell, I arrived in the retail division almost by accident, but what a happy accident it turned out to be.

I had some very lucky experiences, and that allowed me to add some skills to my genetic advantages. Before 1990 Shell did not even recognise itself as a retailer, then it lurched completely to the opposite extreme, before settling back into its original torpor. Lost opportunities abounded, and still abound.

I am currently in Europe on holiday, and on the flight over I got to watch one movie. In the end I made a smart choice of The Founder, a biographical movie about Ray Kroc, the early impetus behind McDonald’s after purloining ideas from the founding brothers.

It was a good movie, well balanced in the portrayal of its leading characters, with plenty of nuance in its treatment of both Kroc and the brothers. But for me the joy of the movie lay in its exploration of the art and the science of retail. Shell’s retailing business has a lot in common with that of McDonald’s – both use outlets and rely on various operating contracts and models with people who run those outlets day to day. So the challenges and insights that shone through the movie were very familiar to me.

In the past I have trained youngsters from the retail arms of oil companies. If I ever got that opportunity again, I think I could devise a lovely workshop using the movie as case study and exemplar material. I think it would be fun and instructive for all concerned.

Here are just a few of the examples of generic retail lessons from the movie. One brother had a “pile it high” showman talent, while the other had an eye for the intense detail of the customer experience. They designed a workflow to offer a consistent fast, quality experience that differentiated from competition while saving costs. They recognised that the service workflow was critical. Kroc saw the potential to scale via franchises, seeing that the name, the golden arches and the service flow were all distinguishing features. He learned how to select operators, gravitating from local business owners with money towards hungry couples with a service mentality. A consultant used a site profitability type analysis to help Kroc win a greater share of the cake. All the while location, location, location was a strong mantra. Kroc was not afraid of hard work himself and spent time fine tuning processes, imposing standards and promoting talent. This workshop could last a week!

My observation of retail in the US is of a fast-changing and vulnerable sector. Retail will survive, after all Amazon is a retailer, but some established business models feel to be heading for a rapid obsolescence.

The US invented the shopping mall – one of my least favourite places on earth. The country is chock full of them, large and small. An amazing statistic is that the US has more than ten times the retail land use per capita than Europe. That occurred because land is generally plentiful, costs for credit, building, rent and labour are all low, and a middle class grew large, wealthy and rapacious in short order. When Americans visit Europe, they must wonder where all the shops are. By contrast, I remember driving around Houston and noting that I could travel miles just by using store car parks.

Many malls were struggling even before the rise of online shopping. Many chains had overdeveloped and were not distinctive enough from each other. Even fifteen years ago, many seemed to me to have no customers except at weekends and holidays, and except for those on budgets and older people who price hunt with bargain coupons and never yield the retailer any profits.

These segments are still around today, and desperate retailers can’t escape from voucher-land. I go into Bed Bath and Beyond for one item, and find it quickly in a deserted store. But then I reach the check out line, and stand while three customers spend five minutes each unloading vouchers and managing refunds or offers. This is not a highlight of my day!

Now Amazon and its ilk have made things much worse. Supermarkets are OK for now, and convenience restaurants are doing well, but anything selling clothes or household items is on life support (though Home Depot is fine for now with its commercial customer base requiring instant availability). The indistinguishable Macy’s, JC Penney and Sears are like ghost towns, but malls realise they need these anchor tenants and I expect many are by now paying negative rents yet still losing money.

The Economist wrote an essay about the death of the US mall and made some fine points, but in my opinion it missed the most frightening aspect.

The point well made was about employment. While the president is busy trying to salvage the few remaining manufacturing jobs, he should surely turn his attention to retail, which employs many times more, including more women and people in every town in the land. Automation is removing these jobs fast but the death of the mall will accelerate the trend. This is the next employment crisis facing America, and it is probably already too late to do much about it.

But for me the point missed by the Economist is the social piece. Not only will smaller towns lose their only reliable place of work and face a downward drag on land prices, in many cases they will lose the only place where people actually meet at the same time. Even in larger cities young people tend to gather at the mall, and in smaller ones they have few real alternatives.

In those places the death of the mall may signal big trouble for the community. Large numbers of people will have no job and nowhere to meet other people. That feels like a recipe for drug and alcohol abuse and for suicide risk to me, adding fuel to another one of the emerging crises.

Is there a way forward? I am not sure that there is. There is no resurrection for retail outside food, food service and speciality stores – Amazon will make sure of that. There is little future for a mall with too much space and not enough profitable stores, especially when more local people have less money in their pockets. Communities can attempt to fashion other civic facilities to meet in, but that would require a large culture change and public funding that is far from plentiful.

Other countries will face these challenges too, but not as quickly or as violently as the US. There, the combination of a lack of social safety net or community cohesion, and dispersed populations outside major cities could be severe indeed. A universal basic income is a good idea and might arrive sooner than we expect, but that doesn’t do anything to create a life that feels sociable.

My great grandfather started a hat shop in 1900 that grew into a network of department stores. My family might have progressed from rags to rags in three generations, were it not for my serendipity in finding a niche at Shell. If I am advising my own children where to look to avoid the curse of “rags to rags”, I will certainly not be guiding them anywhere near a small-town US shopping mall.