The Demise of the Local Retailer?

ONCE I OWNED A PRETTY SUCCESSFUL HARDWARE/GARDEN SUPPLY STORE, WHICH I SOLD IN 1987.  IN TODAY’S DOLLARS SALES PER SQUARE FEET AVERAGED ABOUT $ 600; THE OVERALL AVERAGE IN 2015 FOR HARDWARE STORES WAS $ 176.

Of course, the store was situated in an affluent market, but other influences were at work as well that drove sales. One was an ability to access a wide spectrum of products and product sources, either via wholesale distributors or direct purchases from manufacturers, or a combination of the two. For example, I would buy direct from Rubbermaid about six times a year, and fill in using distributors as needed. I also strove to sell value: that combination of fair price plus quality.

Many of these products and sources no longer exist, or they exist in name only. A large percentage of my sales were in the garden segment. As such, I would offer three or four price points for an item like a hose nozzle; one promotional and two or three of higher quality.

But each one was highly serviceable and would last, at a minimum, for several years. Since moving to Florida, I’ve bought several nozzles (with superfluous features), none of which lasts much more than a year. Brand means nothing, since they often resemble each other except for the color of the plastic components, and they likely came from the same factory in China.

This isn’t to say that hardware stores are not doing well. The attrition of the 1980s seems to have slowed, and the surviving stores tend not to be dusty relics of the past (although, admittedly, that can be part of their charm).

But, in general, it is increasingly difficult for an independent to offer products much different than those on display at the big-box stores. As they always have done, independents rely on service and convenience to attract customers.

The long-term problem for independents is that convenience is a mouse-click (or a few miles) away, as is the ability to comparison shop. For the most part, this means that higher-priced items like power tools or commodified products like garden mulch cannot be offered at a competitive price by the independent, who increasingly becomes reliant on lower-priced convenience items that must be priced at a premium in order to maintain overall profitability.

A customer is not likely to travel five miles to a Home Depot to save 50 cents on a light switch.

Mall-dependent chains like Sears and Penney’s have similarly suffered from the “Amazon phenomenon,” and many of their ilk will disappear from the marketplace over the next few years.

Closed Mall

For hardware stores, and all retailers, to escape a similar fate, owners must abandon a sometimes uncaring attitude and avoid what I call the “empty-hook syndrome,” one that cannot be explained away by saying, “It will be back in stock next week,” forcing the customer to travel that five miles to Home Depot.

The Demise of Retail Jobs?

Of the 7.5 million retail jobs at risk in the U.S., 3.5 million are cashier positions. At the forefront of automated (self-serve) checkout is the grocery industry and the surviving big-box stores like Home Depot, Sam’s, and Target.

All three examples have already begun the transition to cashier-free checkout. Instead of having a person at each terminal, one person can cover all of them and resolve problems as they arise. Most affected are women, blacks, and Hispanics who all compete for these low-paying jobs, which are often part-time with no benefits.

In Seattle, Amazon opened an experimental store (“Amazon Go”) that completely eliminates the checkout process. Customers simply pick up what they need and walk out; everything is identified and billed automatically. Indications are that Amazon will convert its recent acquisition of Whole Foods to this retail format (which has made the entire grocery segment nervous).

In synchrony with the erosion of certain retail jobs is the closure of major retail outlets like Sears, Macy’s, RadioShack, and Payless Shoes, and the risk that others like Penney’s and Neiman Marcus will soon follow. The loss of these “anchor stores” spells disaster for malls across the country. The double whammy of Amazon plus mall closings means that there will be up to 9,000 fewer retail outlets in 2017 alone.

No Easy Answers

Despite closures and automation, retail employment is expected to grow 5 percent or more, at least over the next 5 years. What will not increase much if at all is average pay, which is typically $10 per hour, often less. Many of the newcomers to retailing will be recent high school or college graduates or workers displaced by factory automation and the removal of production to offshore factories where environmental regulations are slack, wages are a fraction of those in the U.S., working conditions are often abusive, or industries are state-subsidized.

The political answer is to penalize companies that leverage these “unfair” advantages with punitive import taxes of 30 percent or more, as proposed by the Trump administration. Domestic companies might profit from such a move, and overall factory employment might increase, but the American consumer will be faced with the inevitability of higher prices for everything from motor vehicles to vitamin pills.

What is not in synchrony is world population increases and the expansion of employment opportunities that pay a living wage. In addition, people live and work longer, resulting in a larger pool of workers chasing employment opportunities that are increasing only marginally, especially for those with a limited skillset and a resume that reveals a barely adequate education.

Cornerstone Capital Group lays out two strategies retailers can take in dealing with the shifting landscape: “Lower-end retailers can use technology to increase convenience and volume, while high-end shops should focus on technology that enhances the customer experience. If more retailers ultimately focus on using technology to support highly skilled workers and enhance service, it may mean fewer layoffs and even higher pay for staffers.”

To misappropriate a cliché, “automation” remains the elephant in the room (or in this case, in the weekly pay envelope). Its ultimate impact on all employment can only be guessed at.

Sources:

• http://cornerstonecapinc.com/2017/05/retail-automation-stranded-workers-opportunities-and-risks-for-labor-and-automation/
• http://www.mckinsey.com/global-themes/digital-disruption/harnessing-automation-for-a-future-that-works
• http://www.businessinsider.com/retailers-at-risk-of-closing-stores-2017-5
• https://irrcinstitute.org/wp-content/uploads/2017/05/FINAL-Retail-Automation_Stranded-Workers-Final-May-2017.pdf
• https://www.theguardian.com/technology/2017/aug/16/retail-industry-cashier-jobs-technology-unemployment
• https://arstechnica.com/information-technology/2017/04/how-amazon-go-probably-makes-just-walk-o

Bill Britton is a freelance writer and formerly an editor for John Hopkins University Press, ABI Research, and Elsevier Science, and is a frequent contributor to Vero Communiqué.