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Is the Retail Sector Doomed to Oblivion?

Is the Retail Sector Doomed to Oblivion?

Is the Retail Sector Doomed to Oblivion

Of all the business sectors disrupted by the pandemic, traditional retail and travel may face the most challenging times ahead. Will they recover?

People love to travel, but it requires extended periods of confinement within proximity to other travellers. Planes are thought to be relatively safe, with their multi-layered air filtration system, so the barriers to a recovery to this business sector are largely psychological and governmental. The gradual easing of restrictions such as mandatory quarantine will tell us whether cross country travel will ever return to 2019 levels.

The hit to traditional, bricks and mortar retail might, however, be fatal. Do we need to physically visit a store to purchase anything? Clothes that require a fitting, maybe. Anything else? Much of the retail sector was feeling a deadly squeeze before shoppers were forcibly confined to their homes. High rents and wages make it almost impossible to compete with the sprawling soulless warehouses of their online competitors. The biggest winner from pandemic lockdowns has been Amazon. Jeff Bezos could not have scripted a more profitable scenario. 

Consumers are creatures of habit. Following months of solitude, will they ever return to the malls and department stores? Is the experience that enjoyable? Many large retailers are currently caught in a deadly game of chicken with their landlords. Locks have been changed, threats made, bluffs called. What is retail space worth when foot-traffic reduces to zero, or 20% of its former levels? Who should bear the expense of the shutdowns? These are questions that only high-priced lawyers can unravel.  

The rosiest retail scenario would see a post-pandemic surge in consumer spending as pent-up demand roars back into the economy. The joy of touching and tasting products will be like a drug to the deprived senses of those formerly under house arrest. Cash registers will ring again and well-managed retailers will have survived their most perilous hour.    

Demographics will play a large part in retail’s survival outcome. Young consumers have grown up expecting blue lit screens will solve all of their quandaries. Their parents are more likely to hold irrational fears about online transactions. Physical stores might survive a few extra years in locations where old folks congregate.   

The outcome of the possible retail death spiral will have a huge secondary effect on cities. New York City is presently a boarded-up ghost town, devoid of retail activity. Rats are starving without pizza crusts to sustain them. The well-heeled have long fled to the safety of their Hamptons holiday homes, where the threat of mob rule and anarchy seems less immediate. What becomes of property prices in formerly sought after city destinations? Do they crash to zero, allowing artists and poets to move back in? Do the cities slowly burn to the ground, unprotected by defunded police departments?   

The smart money seems to be betting against a return to the glory days of retail shopping. Say goodbye to the carefree days lugging shopping bags around town. It’s just too easy to open a laptop, click some buttons, wait a few days, and receive packages via home delivery. On the flip side, people are contrary and unpredictable. Perhaps physical shopping will be elevated by its period of deprivation. Humans are sensory creatures that crave stimulus. Maybe the small and nimble retailers who offer a specialised service will survive, and the slow-moving dinosaurs will be driven to extinction. Vacancy signs are coming.          

Jackson Byrne – Retail Strategist  

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