Page 33 - The City of Greensboro Conditions and Trends

CITY OF GREENSBORO COMPREHENSIVE PLAN CONDITIONS & TRENDS

The Transformation of Retail

The Trend

The American retail industry is changing dramatically as people become more reliant on technology, electronic devices, and
access to products and information. In the US retail accounted for $1.3 trillion in second quarter 2017 sales, according to
the US Census Bureau. However, terms like “retail apocalypse” and “retail spiral” are seen and heard frequently in news
reports to describe the growing trend of store closures. But the ongoing transformation of the retail sector is not as simple
as a catch phrase.

There are three primary explanations for the changes in the retail industry. The first of these is what most observers point
to: the continuing rise of e-commerce, which has drawn significant market share away from brick-and-mortar retail sales.
Nearly all traditional retailers have had to add e-commerce platforms in order to remain competitive, and some have been
far more successful in this transition than others. The second factor is the over-construction of retail space in communities
nationwide. The third major factor is the high debt that some retailers have incurred as they sought to add more bricks-
and-mortar locations, which has led to store closures and company bankruptcies. These national trends and influencing
factors are likely to affect Greensboro over the planning horizon.

Background

Of the $1.3 trillion in retail activity cited above, e-commerce sales accounted for $115.5 billion, which represents an
estimated 8.9% of total sales and an increase of 16.3% from the same period in 2016. Analysts expect this upward
momentum to continue. In a recent report by MSN Money, retail chains have announced 6,800 store closings and over
3,000 openings, a net decrease of 3,800 stores. Some brick-and-mortar retailers are consolidating and in some cases filing
for bankruptcy, but many others are making the transition to ‘Blurring’ or ‘Omnichannel’ retailing. Omnichannel retailing is
the convergence of online and offline buying, where neither has a pricing advantage over the other. Consumers are
presented with options for buying on multiple platforms: online, in-store, or both (order online and pickup in store or order
in store and have it delivered). Traditional retail giants such as Walmart, Target, Home Depot, and Toys-R-Us, have adjusted
their platform to allow for online shopping with a local pick-up option. Home Depot’s online sales grew 23% in the second
quarter of 2017, compared to the same period in 2016, which accounts for 6% of its overall revenue. Of Home Depot’s
online sales, 43% are picked up in-store.

Analysts speculate there will be a shift from traditional brick-and-mortar stores to “fulfillment” centers as an alternative to
closing store locations. Prophet, a global brand and marketing consulting agency, assists retail companies such as T-Mobile,
Target, and Cisco, in the transition to brick-and-mortar/e-commerce partnerships. Prophet refers to this shift as “The Blur”
and stated in a 2017 online post, “As The Blur progresses, the focus will become less and less on comparing online and
physical sales, but rather looking at how the brand and customers are exchanging value throughout the entire customer
experience.” With 3000 store openings and announcements of additional openings by Amazon and Apple, it is clear that
physical retail stores are still effective.

Many retailers will successfully adapt to the digital age, but some who have already established this partnership are still
filing for bankruptcy. In some cases the debt burden from overexpansion is coming due, and lack of lender confidence is
providing little to no opportunity to refinance this debt. Retail debt includes over-borrowing for development, leveraged
buyouts, delinquent loan payments by malls and shopping centers, debt from borrowing by troubled retailers, and store
credit card obligations.

DRAFT -33- March 15, 2018