Retail is screwed. There isn’t another way to put it.
Actually there are other ways to put it, but that was the least profane one I could settle on after an editing process. Everyone realizes that, at this moment, the retail sector is incurring the biggest disruption in the history of modern markets. Simply put, the stores are closed. So they can’t sell anything. This is not a complex economic problem. Yes, some retailers, those which are deemed essential, remain operating: the grocery stores, and the Walmarts and Targets that have groceries but are mostly for other purchases. Then there’s the Home Depot and like stores.
Everyone knows this is all kind of ridiculous. How do we know a store is essential? It exists. That’s a fact. If a store was non-essential, it would cease to exist. Many have. Borders and Circuit City once existed, because they were once essential. Now they don’t because they aren’t.
I realize that the grocery stores provide actual sustenance, which is truly essential to maintaining life, and that’s a far cry from DVDs and hardbound books, but the powers that be put no limitations on my quest for sustenance where I live, in Southern California. I can go to the grocery store as much as a I like. If I want to buy colored pencils today, and cigarettes tomorrow, I can do it. I now have to wear a face covering, but other than that I’m good to go. We are not living with ration coupons, like World War 2 Americans had to at times. McDonald’s also, is an essential business in this pandemic. This is the reality where I live, but nowhere in the country are the restrictions limiting the consumer to what is strictly necessary to keep being alive. Even in Governor Gretchen Whitmer’s Michigan, where severe restrictions have been placed on many goods, I could still participate in the state lottery, which she has deemed essential.
And because the retail window has narrowed to these places, business for them is momentarily great. I used to work in grocery, and when the panic buying began, a friend still in that business told me that his store was consistently at 400% of normal business. All kinds of items were flying off the shelves in a scene even remotely familiar only to those of us who have seen the lead-up to a blizzard, and the only problem was a supply one.
But it can’t last. And clearly it hasn’t lasted. Every time I go to the grocery store now, it is evident they have a greater and more consistent supply than has been typical for the last two months. Soon, it will be effectively normal, with the odd outlier item, hand sanitizer or various things that count as PPE, being still hard to find, and in enough time even those things will be back in abundance.
But online retail has done great for itself too, in this crisis. The exact numbers aren’t clear, but the unprecedented delays in shipping times and fulfillment advertised on Amazon lately speaks broadly for how much business they’re doing, both in groceries and in the random consumer products they’re better known for. Plenty of competitors have been able to pick up the excess business from customers who don’t want to wait for those delays. So it’s safe to say that online, business is booming too.
In the city where I live, sales tax is the single greatest generator of revenue. And we have bills here. We have to pay them. We have fiscal liabilities past, present, and future, and these taxes go a long way to keeping us solvent. We saw municipal bankruptcies in the financial crisis, and we’ll see them again. I don’t anticipate anything so dramatic in my city, but there will be pain, and it’ll be felt for a long time. Such pain was felt all over the country after the financial crisis, but our economy rebounded. I have zero doubt the national economy will rebound from the current morass too, but that recovery will not be evenly distributed.
The problem is that the current crisis is going to permanently alter consumer behavior, at a time when it was already in a long term trend of being altered. In a recession, people don’t go shopping because they don’t have the money. But once they have it again, they’ll be back. Before the pandemic downturn, it was obvious that consumers were back to behaving about as close to 2005 as was possible in light of newer rules. Consumer debt was back at record levels. Credit card debt had roundly defeated its 2008 record.
Many people were already buying many things online. That’s obvious. You and I both were. But not everybody was. There was a type of consumer who stubbornly stuck to the retail transaction, and who kept many in the retail sector on life support. Call this person Joe. Old Joe. He’s 50-80, and a late adopter of trends and technology. Recently, Joe bought something online, perhaps for the first time in his life, because he wanted a particular thing and he had no other choice, because the place he would have bought it in person is closed. And even if he had bought something online before, maybe Joe had to do it himself this time, because social distancing precluded his daughter coming over to do the work behind the keyboard. And what did Joe learn? Well, this is 2020. He learned this process is easy and cheap, and someone brought the thing right to his door.
So Joe’s behavior will change now. Yes, he will probably go back to the store when it opens back up. But he’ll go a little less. And the way that profit margins work—think small—in retail, particularly in publicly held companies (which most of the retail names you recognize are), a light trimming of those margins can be fatal.
The stores have bills, too. They aren’t camping out on those enormous chunks of land for free. Their employees don’t show up to work for fun, either, despite official corporate policies that often define fun as mandatory. And then, of course, many of them exercise less than the utmost care with regard to debt. Those costs are going to come in very close proximity to catching up with those businesses this year, and in many cases, they’re going to seize their prey. It won’t take that many Joes doing business elsewhere for there not to be enough money on the table at the end of the day for an apparel store, or a movie theater, or a restaurant, or the somehow-still-extant-office-supply-chain, to meet their obligations. Some of those may not seem like retail proper, but more on that later. In any case, you’ll see examples of all of these things fail, and you’ll see Halloween stores breeze in and out, in their places, with the autumn weather. Then they’ll just be husks that remind us our world has shifted.
And as for grocery, and other essential stores, 400% of normal business? Watch what happens next. During the initial panic, a lot of people were unable to get what they needed from the effectively sold-out grocery store. A lot of people turned to Amazon Fresh or a similar online food merchant for the first time. Now they know the ease with which they can order their food and have it brought right to their door. Joe isn’t good on the computer, but he’s learning, and people learn very fast when it’s out of necessity. These stores are much more likely to survive than their non-essential peers, but when the dust settles their market share will have undergone a substantial net loss. Sure, a lot of people, even most, will continue to use the grocery store as they normally did. But a few won’t. A few will give it up forever. And the grocery store has the same margin problem as everyone else. A small bite out of their normal baseline business will be felt through entire companies.
The economic fallout is going to be the real fallout from COVID-19. The public health crisis is truly a nightmare, and a tragedy, and a source of frustration that any person capable of thinking and caring has felt in their heart, whether it touched them personally or not. But know this: the economic fallout will touch everyone, and there will be no exceptions. Even the consistently and wildly rich will be slightly (or substantially, depending on how they are positioned) less rich. The poor who were struggling already will be cruelly forced into S.O.S. territory. And everyone in between will have their own experience, none of them a positive one. Only random, cunning profiteers in this crisis will have anything to brag about, and if they are wise, they will refrain. The appetite to eat the rich never subsides, but it is prone to growing from quiet and unassuming to suddenly loud and fevered.
And it’ll matter when we lose retail. It’ll be a change in American life. It’ll be a lot like how a previous generation watched the long, slow death of manufacturing, and ironically, manufacturing will reappear, at least for a trial run, as scenes of the hurt this crisis put on the global supply chain become starker.
I am from a small town. I moved there when I was three years old, and there was nothing in that town. There was just a sleepy downtown, and everything else was set in endless acres of wood. Over the course of my adolescence, I watched it change. They built houses, but the biggest footprint that reshaped the landscape was retail. Stores, restaurants, a movie theater—these things all count for the purposes of this discussion, particularly because the defining characteristic here, unlike in prior discussions about how online retailing was the thing killing conventional retail, is businesses where the public congregates. That’s going to be what keeps people home, not the mere ability to buy a thing cheaper or with more convenience.
I think we generally agree that restaurants will remain essential. It’s nice to go out to eat. You can’t stream this experience. People need to go on cute dates somewhere. But many of the restaurants are mall-adjacent, so to speak. They sit in between big stores and little stores, that up until six weeks ago processed thousands of transactions every month, kicking a little off the top of each to various levels of government.
The movie theaters are less essential. On the contrary, I’ve seen their demise as what’s essential, even before the pandemic. They’re a nice place for a cute date too, but there’s a unique problem: they’re enormous. One of the reasons smaller movies have disappeared from theaters is that their losses aren’t just measured in the amount of people who don’t buy a ticket to a Tim Roth movie, but in the tickets that could have been sold to a Marvel movie, if it were playing on that screen instead. But even those movies packing the house can’t heave the enormous burden of justifying the footprint of the megaplexes. The prices have risen sharply, as most of us who aren’t children join a growing consensus that the product has gotten worse. They’re not making movies I want to go see, or where they are, they aren’t showing them in the theaters. I desperately wanted to catch Martin Scorsese’s The Irishman last year, but it didn’t come to any theaters in my area until well after its Netflix premiere.
And that’s the other problem. Streaming has been breathing on the theater exhibitors’ necks for years, and in this pandemic it has almost certainly finally taken a bite. Netflix picked up an astounding 16 million new subscribers last month. Joe is probably scrolling through all those choices—none of which will cost him any more than his monthly fee—for the first time. He’s realizing that this sure beats paying nearly $20 for one movie that he had to fight the crowds just to get into, after a long trek in from the parking lot, only to be disappointed by its poor quality.
And okay, not everybody is Joe. Lots of people really miss the movies right now, and they want to show back up once it’s safe to. But again, consider the margins: those theater owners need to sell a lot of fucking popcorn just to keep the air conditioning on. It won’t take that many Joes or their children bowing out of the Friday night rat race for a huge bite to be taken out of that business. If you add up all the people who decide streaming is better, and all of the people who are going to simply too afraid of germs, it’s going to be a lot of people. You probably feel one way or the other about this, but if you feel like you’re ready to go back to the movies now, try this thought experiment: they’ve reopened the theaters, and you’re sitting in the first movie you’ve been to in months. The lights go down and people stop chatting, and that intro starts playing and you’re happy to feel some semblance of normalcy again. Then, in the darkness, a cough. How do you react? What do you feel at that moment? Do you tell yourself, “it’s probably nothing?” What if it’s the person right behind you? What if it’s you? Do you notice that every eye in the place suddenly turns in your direction? Are anything like these scenarios a way in which you can comfortably watch a movie?
And retail otherwise? It’s not even worth addressing. Neiman Marcus is said to be headed into bankruptcy while I write this. Like tomorrow. So imagine a mall, and the big anchor store vanishes amidst its corporate bankruptcy, and the movie theater quickly follows behind it, in a whirlpool that sucks in all the smaller stores, because it’s depressing to go to one of those fucking malls where only every third store is open for business. Yes, Chili’s is still open. You can get your frozen margarita and Awesome Blossom. But that mall is pretty big. That Chili’s, and the Olive Garden, and whatever else they’ve got going on there isn’t going to justify devoting that enormous plot of land to commerce, even if it seemed impossible to go wrong 20 years ago.
So they’ll bulldoze it. They’ll flatten it. That’s what’s happening: retail, literally and figuratively, is undergoing a flattening right now. And it will be a domino effect that touches things a world away from retail. In my city, we’re going to feel those lighter pockets. We, who lived through 2008, all understand what systematic shocks to the economy are. But that won’t make it feel any better when it creeps into our own place of work, retail or otherwise, and exacts its price on us.
Not everyone agrees with me. In fact, if you read or listen to market voices, many clearly do not. But one point I should make is that if we were speaking strictly in analogies, this would be a breakup, not a death. Nobody is denying that people are going to keep buying things. Likewise, in 50 years, I have every reason to believe you’ll still be able to visit something called a store in your community, where you can do this. The point is more that everything as we know it will change, more than it already was changing. Whatever amount of stores exist in your city in 50 years is going to be far fewer than are needed to fill up either an indoor mall or a strip mall of the size that currently dot the landscape in America. So effectively, what that means is that there is no getting around the point that cities and developers are going to have to adjust their plans toward revamping that landscape into something else through broad changes, just at the time when these changes are forcing a resource crunch on both. My only advice would be to start early. If you look at the places in America where manufacturing was most thriving in 1950, it’s not going to make you optimistic.
If you’ve ever gone through a bad breakup, you know that some version of Elizabeth Kübler-Ross’ Five Stages of Grief is real. I say some version because personal experience tends to really vary on this concept, but few would deny that its broad strokes are relatable. Generally, these stages are: denial, anger, bargaining, depression, and acceptance. Before the pandemic, the economy was flirting with bargaining: many malls were being reinvented as mixed use, often with a living component. But some municipalities were stuck in denial when it came to the approval of these projects, for a host of reasons, but one undoubtedly being the revenue that only retail delivers to local government. While we’re likely entering an economic depression at the moment—and it should be noted that outside of the 1930’s, American economic depressions don’t usually last many years—the retail sector is likely to be positively schizophrenic in the stages it oscillates between in the next, say, five years. There will be denial for some. Others will move quickly toward acceptance. There will be seeming hops back and forth between every stage in between for many, while other parties will try to shop the stages à la carte. It will not be pretty, for anyone. This is an industry that directly employs 29 million people in this country. U.S. manufacturing only employed 19.5 million at its 1979 peak. You can imagine how this would be a substantial disruption, even if I’m only a quarter right. Ultimately, the market will arrive at acceptance, because acceptance is the stage that rises to meet you, even when you resist it. In a breakup, a person who is truly incapable of acceptance is, sooner or later, going to be met with a restraining order. For parties with an interest in retail who are too stubborn to embrace acceptance, it’s going to be the forced dispossession of their assets, and this is likely to include municipalities, where they are truly incapable of change.
There is hope. There will be normalcy. But it will be eventual normalcy, not quick and easy normalcy. The whole economy is changing. There isn’t even time to talk about demand for office space being a certain casualty of this global experiment of learning who can and can’t work from home. Nor is it worth going into how needing to sanitize and cover your face is going to negatively impact the user experience of all in-person business once something called normalcy finally reemerges.
But you’ll adjust to that too. You will persevere through all of this, and this will qualify as something worth telling your grandkids about. You’re allowed, right now, to live day to day, learning as you go, and making mistakes as you wouldn’t choose to, but nevertheless must. That’s what we’re literally all doing. If you listen closely, you’ll note that even the experts (even the ones we laud) are learning as they go, and revising their guidance accordingly. Challenges are the norm. A life of complacency is not. If you’ve made it this far, your luck is pretty good.