May 2, 2017    3 minute read

Sink or Swim: The Retail Industry Faces Up to the Rise of the Internet

Go Online or Go Home    May 2, 2017    3 minute read

Sink or Swim: The Retail Industry Faces Up to the Rise of the Internet

A difficult holiday season resulting in missed sales expectations has kickstarted an unrelenting attack on the retail industry. Over the past few months, there has been a continual cycle of reports of popular retail chains shutting down stores, struggling to meet sales expectations, and a movement towards online retailers such as Amazon. Many of the big names in the industry have been dealing with varying issues, but it also exists in an increasingly digitised age, with shoppers becoming increasingly accustomed to online shopping.

The Big Names

The list of struggling retailers is extensive, but a few of the big-name firms include Macy’s, Sears Holdings, JC Penny, and Abercrombie & Fitch. Some indicators of the retail struggles include the reports that Macy’s plans to close over 100 stores, Sears Holdings is expected to close ~150 stores (~100 Sears and ~50 Kmarts), JC Penney has plans to close 138 stores, and the popular clothing outlet Abercrombie & Fitch’s announcement that it will be closing 60 stores.

To make matters worse, LA prosecutors are accusing a few of these firms, notably JC Penny, Sears, and Macy’s, of falsely advertising discounts in order to lure shoppers into their stores. Allegedly, the retailers falsely advertised high list prices on merchandise that was never actually for sale at that price. That led customers to believe that they were getting a better bargain with the sale price than they actually were.

The retail industry’s struggles have extended past its clothing sector. Even major discount retailers Target and Walmart have been having difficulty meeting sales expectations. This has resulted in Walmart announcing that it will slash hundreds of jobs in their corporate offices. Target hasn’t fared much better. The firm reported earnings that were below its original forecasts. Target announced that they expected comparable sales to fall 1-1.5% in Q4 after originally forecasting between a decline of 1% to an increase of 1%.

A Shift to the Web

Sales in Target’s stores dipped 3% in Q4 of 2016, while sales online rose more than 30%. Walmart posted similar results. Same-store sales at Walmart U.S. rose a healthy 1.8% – which is better than Target but not nearly as vast as a result of their e-commerce sales. Walmart’s online sales gained a solid 29% during Q4. This result was no doubt aided by the company’s $3.3bn September acquisition of Target has not taken similar drastic measures to improve their e-commerce business, possibly leaving them trailing in a forward movement.

Despite the performance struggles from traditional retail outlets, Amazon seems to be flourishing. The company has announced that it will add more than 100,000 new jobs in the next year and a half. This staff will be needed in their new warehouses in Texas, California, Florida, New Jersey and beyond. The company’s management also pointed out that they had hired 120,000 seasonal workers to take care of orders at Christmas time.

Go Online or Go Home

Amazon’s success in the face of struggling traditional retailers underlines the fact that the future of retail sales is through online platforms. Prospective customers are becoming less willing to spend hours shopping in-person, and would rather make the majority of their purchases online in the comfort of their own homes. It’s clear that Amazon’s business model is the future of retail shopping – they have a winning platform that reflects the future of the industry. The real question is about how traditional retail outlets and discounters will fare with this changing landscape. Will they be able to make up the difference and transition seamlessly to a forward moving platform? Only time will tell.

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