The "Real" Cause of Retail's Decline

What’s been termed the "Amazon effect" is typically blamed for the decline of retail in the United States but the root cause is actually a vanishing middle class.

Alan A. Ayers, MBA, MAcc is President of Network and Strategic Initiatives at Experity and is Senior Editor of The Journal of Urgent Care Medicine.

Over the past 20 years we’ve seen a big shift in retail real estate away from regional malls.?Used to be if you wanted to be where the people are, you’d locate near the mall.?But today, regarding malls, nobody cares.?We’ve thus seen the obliteration of mall-based stores, from Sears to The Limited.?It’s easy to blame Amazon and the "e-commerce revolution" but it’s not like the leading retail chains including specialty stores didn’t invest in online platforms—they did. In fact, Sears and JCPenney (through their catalogs) had sophisticated home delivery logistics which could have been adapted to Internet years before Amazon built its first warehouse.?Truth is Amazon is only one of about 10 factors contributing to retail’s decline.

Columbus, Ohio in the 1980s was epicenter of the retail industry, headquarters of national chains from Victoria’s Secret to Big Lots, including the backbone of Federated Department Stores, re-branded as Macy’s.?Macy’s consolidated iconic department stores in nearly every major city including Marshall Field’s in Chicago and Bullock’s in LA.?A recent article (https://www.retaildive.com/news/how-macys-set-out-to-conquer-the-department-store-business-and-lost/608277/) describes the history of Macy’s as a series of "mis-steps" including discarding local nameplates, market knowledge, and brand loyalty in favor of a nationwide, generic, commodity...“what???”.

In the 20th century, a booming middle class fueled the proliferation of “Main Street” department stores, which sold everything under the sun.?I think of "A Christmas Story" set in 1940 when Ralphie, family in tow, took his “wish” of a Red Ryder BB gun to Santa at the landmark Higbee Company on Cleveland's Public Square. In the 1940s, things were really "hot" in Cleveland. When it's population peaked in the 1950s, Cleveland was the most affluent city in America due to an industrial base fueled by Appalachian coal and steel, access to rail and Great Lakes shipping, and Standard Oil wealth.?

About 10 years ago I had a conversation with Mark Shapiro, president of the Cleveland Indians, in which he described the subsequent decline of Cleveland—“the issue isn’t so much the population loss, which is significant.?It’s that the population remaining in Cleveland is far less affluent.”

Malls boomed when people moved to the suburbs starting in the 1950s and peaked in the 1970s as city centers became plagued with drugs and crime. By the 1980s suburban malls had become the primary social venue for teenagers. That's why LA's Sherman Oaks Galleria made cameo appearances in such generation-defining movies as Valley Girl and Fast Times at Ridgemont High. But over the past 20 years cities like Cleveland have revitalized their downtowns (Higbee’s is now a casino) and as more leisure time was consumed by social media and other digital channels, the suburban mall became irrelevant to the younger generation.

With the exception of lifestyle centers like Columbus' Easton Town Center (combining retail, office, residential, dining and entertainment), traditional malls in the 21st century did not evolve beyond the long obsolete strategy of driving foot traffic by “teen fashion.” Meanwhile, adults had already abandoned the mall in favor of “category killers” like Best Buy and Home Depot with wider selection and lower prices.?“Soccer moms,” especially, loved the “hunt” of department store "finds" at off-price stores like TJ Maxx.

Now you may be thinking Walmart, not Amazon, is the culprit of retail’s ultimate demise but Walmart is likewise an “effect” rather a “cause.”

Boil it down and the decline of department stores and malls has been driven by the shrinking middle class—down from 61% of the population in 1970 to 50% today.?On a positive note, the “upper class” grew from less than 10% in 1970 to nearly 25% today.?This polarization in wealth explains we’ve seen simultaneous booms on the low end (Walmart, Target) and on high end (Nordstrom, Apple).?Indeed, as some Macy’s customers graduated to Lululemon and Anthropologie; household economics turned many Sears and Penney’s loyalists into “always low prices” Walmart shoppers.

Now, Walmart is being bled by the likes of Dollar General, Aldi and Harbor Freight offering even lower prices which indicates a further divide of America’s “haves” and “have nots.”

Want to see an awesome mall??Try Dubai, Manila, Istanbul, or anywhere in India or China. In emerging global markets with a growing middle class, like America in the 1950s, malls are still the place to be!