Posted on 06/17/2020 at 09:00 AM
The Fall of Giants
JCPenny recently announced that they will be closing their mall location in my hometown. I remember when I was younger my mother would take me there to buy nice outfits for special occasions and I am pretty sure it was the store-of-choice when I purchased my suit for the Homecoming dance in high school. I'm not the only one with a personal connection to the store, the 118-year-old company has a bit of a history in my town. In fact, a sightseer with a keen eye might spy the faded white letters, JCPenny, in an alley located in our downtown main street district. It waits to be viewed, undisturbed for decades like a specter advertisement of yesteryear.
The store is one of two announced closures in malls in Iowa. The decision to close comes after JCPenny (along with other retail giants) saw a sharp decline in revenue from brick and mortar storefront sales thanks to the COVID-19 outbreak and filed for bankruptcy. Many see the closure of the chain’s multiple locations in malls across the country as another sign that the retail industry is in serious trouble.
Other large retail stores (known as anchor tenants) closing their mall locations include Victoria’s Secret and Pier 1 Imports according to a recent report by Bloomberg. The same report predicts that as many as 25,000 stores may close in 2020 (especially in mall locations).
The article states that as many of these anchor tenants close their stores, smaller stores will likely follow suit, leading to the further collapse of malls everywhere. Now, real estate companies have been buying failing malls (once valued at 10X as much as they are currently) across the country at a fraction of the cost and converting them to community-friendly events centers such as ice rinks, events venues, and more.
To understand why malls have slowly failed, it is important to understand buyer psychology and the mall’s impact on it. The first step in the consumer buying cycle is known as Needs Recognition. This is when you realize that your current state of being does not match your desired state of being. To put it simply, you see or need something, realize you don’t have it, and want it.
As a teenager in the late 1980s through the mid-1990s in America, you were not cool unless you were seen hanging out with your friends at the mall. The boys loved to hang out at the RadioShack, or the Video Arcade and the girls could be found shopping at Yonkers or JCPenny. Teenagers went to the mall to socialize, see movies, and shop nearly daily after school and on weekends. Needs recognition was triggered by seeing an advertisement on television or in a magazine and further reinforced by seeing your friends wearing the newest, coolest shoes or playing the coolest game in the arcade.
The Evolution of Information Seeking
The second step in the buying process is information seeking. In this step consumers begin to educate themselves about the product or service they wish to acquire. Often we first evaluate our personal experiences, then turn to sources we trust for more information. Nowadays, this comes in the form of reading reviews or even a simple Google search, but back in the prime of malls, it was all about seeing what your friends were wearing, then checking out the storefronts to see if the item was still in stock or a suitable replacement could be found. Word of mouth truly was the purest form of advertisement. Economic up and downturns caused revenue to rise and fall, but for the most part, every mall storefront was filled with a profitable tenant. The experience of socializing was as much a part of the mall culture and the buying process as shopping thus helping to maintain sales no matter the state of the economy.
Rise of the E-commerce
The shopping experience began to further change with the rise of the internet. It seems when anything new comes along, people try to figure out a way to monetize it. The public internet was no exception and not long after the world wide web was invented, people realized they could use it to make money. E-commerce was officially born.
Q. What was the first official online Retailer?
A. A bookstore by the name of “Book Stacks Unlimited” with the website books.com (later sold to Barnes and Noble).
The first item ever sold online was, you guessed it, a book.
Though not the first, the biggest online book retailer was founded in 1994 by a man named Jeff Bezos in the form of a company called Amazon. Amazon has since become the world’s largest online retailer and is constantly in the top 5 of the Forbes Most Valuable Companies List (with the other top 4 companies also from the technology industry).
Books were not the only thing being sold online. In 1995 eBay was born as an online auction site, complete with secure ways to “shop” and spend money online thanks to a new technology called “PayPal”. This meant that anyone could sell anything at any time. In 1998, Google made its debut and soon changed the way people found information forever.
How COVID-19 has Transformed E-Commerce
According to a recent article on Forbes, the negative economic impact of COVID-19 can be seen as an exact opposite reflection when looking at its impact on E-commerce. With nearly 95% of the population of the United States (over 300 million people) under stay-at-home orders, brick and mortar stores had to fight to stay afloat and many were required to change (evolve) their business models.
U.S. online retailers year-over-year revenue is up 68%
Online retailers have seen their overall revenue year-over-year soar (68%) as consumers shift their buying habits. Companies who have adapted to the shift in demand are the ones who will not only survive but thrive.
Retailers who already had an E-commerce platform in place have reported an 8.8% increase in online conversion rates. This type of buying urgency was previously reserved only for Cyber Monday sales.
The year-over-year growth of all online retail orders placed was up an astonishing 146% as of two months ago (April 21, 2020), and continues to climb.
What Does All This Data Mean?
The age of an online store to support a brick and mortar location or chain is over. The roles appear to have reversed with many primary sources of sales revenue for the last three months being the result of the use of an e-commerce platform.
Stores have begun to re-open, but consumers may be hesitant to return to their previous shopping behaviors. We (consumers) have had a taste of the simplicity of ordering online and having items delivered to our door. Will consumers really want to return to the practice of going to their local Wal-Mart or Target?
The Coronavirus COVID-19 also remains a threat presenting health concerns (as of mid-May, only about 3% of the population has been tested for the virus). As service providers and retailers reopen, shoppers put themselves at risk of exposure. Cases have been declining across the country, but will the virus return as more people resume their daily activities? Because of the low number of citizens tested, we cannot be sure of the true scale of infection. The latest model from The University of Washington's Institute for Health Metrics and Evaluation (the same model used by The White House) forecasts a resurgance of the virus in fall and winter, potentially raising the COVID-19 related death toll to 200,000 people or more by October.
Because the future financial viability of physical locations remains unclear, the safest bet is to jump on the e-commerce train as soon as possible. Many retailers changed their business model long before COVID-19 and have found that their e-commerce sales have become the primary source of income, supplemented by a solid social media strategy. Often, these retailers maintain a storefront to support their brand and to act as a “home base”. Retailers need to have a fully cohesive and integrated sales strategy that utilizes an adaptable e-commerce platform in conjunction with their in-person sales efforts and social media strategy if they hope to remain viable in the future.
Nothing could have truly prepared businesses for the impact of a global pandemic. They can, however, be prepared going forward.
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