Debunking the Retail Apocalypse

The Start of the Retail Apocalypse Narrative > Retailers Close Stores Every Year o Rebalancing store portfolios is a function of any chain retailer's business. Each year retailers, (should) close underperforming stores and open stores in new locations. If there is one mantra that has become the norm in the recovery from the Great Recession, it's to learn to fail quickly. Savvy retailers have learned to cut their losses and close stores quickly and move on to more profitable regions. o With advances in demographic systems and location technologies, retailers are better than ever at predicting good locations, but the data is not infallible. Macro events can have significant impacts on store traffic. For instance, if an anchor store in a mall is closing, every retailer in that mall is affected. ➤ First Year Fung Global Data Went Negative o Besides the closing announcements of major brands, the primary data used to fuel the Retail Apocalypse narrative has come from our friends at Fung Global Retail & Technology. They do a terrific job on trends and the data they research. In particular, they are the go-to resource covering Department Stores and Apparel in detail, and particularly the larger companies, whether they be public or private enterprises. Since the two primary segments that are struggling the most fit into their coverage area, their early 2017 data on openings vs closings showed more closings for the first time in several years. This was picked up by the press that cover retail news. ¡HL > Lack of Other News To Counter o Up to this point, there really has been no other research that takes a more comprehensive look at the market than what Fung Global had produced. Without countering data from another source, the press simply went with the Fung data as proxy for all of retail. Pretty soon, Retail Apocalypse took over the narrative. Bad News Sells o Experience shows that bad news generates more clicks than good news. For example, the evening news template sets the first 20 minutes for shocking headlines, then a health story (that might be good or bad), sports, weather, and then the broadcast ends with a good news story to leave viewers on a positive note. In broadcast media, the constant tease to the next segment keeps us watching or listening, and this is almost always negative and exploits our human FOMO (fear of missing out). o Because Retail Apocalypse was such a great negative headline, the stories almost always focused on the store closings and often even exclude the openings to maximize clicks and shares. ➤ Amazon Becomes the Villain o Every apocalypse needs a villain and Amazon has become the proxy villain in retail. Online is certainly a growing part of the changes happening and Amazon is the largest player. But their retail revenue growth, particularly in Fashion and Department Stores, represents less than 5% of the impact on stores. Total ecommerce growth in 2017 is 28% of retail growth and Amazon is about 50% of that. Certainly Amazon is a threat, but they are not the cause of what we are seeing in these segments that are struggling. Copyright 2017 IHL Group - All Rights Reserved 7

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