Listen to this article
This is an experimental feature. Give us your feedback. Thank you for your feedback.
What do you think?
America’s annual Thanksgiving holiday is followed by “Black Friday” — traditionally the heaviest shopping day of the year, when economists monitor sales and gauge the strength of the economy. This year, however, the attention will mostly be on where people are shopping and how they are doing it.
Internet retailing has been growing and making inroads for two decades but the last year has spurred investors to make a decisive bet that some traditional retailers are doomed. So far this year, internet retailers have surged while the share prices of department stores have collapsed — even though retailing as a whole has fared well.
Once huge names in American retailing, like Macy’s and JC Penney, have seen their market values shrink while Amazon and other internet retailers — plus a few large retailers including Walmart and Home Depot that have resisted incursions from the internet — have growth ever more dominant. This is how the retailing sector has changed, in terms of market value, so far this year:
Malls have generated the greatest concern for investors. An American invention, and long the favoured way for many people across the country to go shopping, the mall is now under pressure. Over the past year, confidence in the real estate investment trusts that hold and operate malls has plummeted, even as the rest of the real estate sector has performed well.
There is good reason for the loss of confidence. Thasos, a company that uses cell phone geolocation data to track foot traffic in malls, and other places, shows that even the best performing mall groups have suffered a decline in traffic over the past year. For the worst performing malls, the drop in footfall over the past 12 months is worse than 10 per cent. The bad hurricane season in August and September depressed activity, but there has been no recovery in the weeks since.
US malls may face a greater threat from the internet than their counterparts in Europe do, because there are far more of them. Thanks to the greater development space available in the US, and more lenient planning laws, the US has far more retail space per person than other countries.
For investors, this has not been a problem, because the incredible rise of Amazon has created far more market capitalisation than has been lost by the decline of traditional bricks-and-mortar retailers. The rise in Amazon’s market capitalisation this year alone is bigger than the combined total market values of virtually every familiar chain that is to be found in US malls.
Analysis of sales data produced by Second Measure, a research firm that uses anonymised credit card data, suggests that Amazon’s growth may finally reach the point this year when its sales overtake those of Walmart’s bricks-and-mortar stores. Amazon’s steady growth has become far more rapid over the past 12 months. It nearly caught Walmart last Thanksgiving; it now looks virtually certain to overtake it this year. Walmart’s online efforts have led to strong growth in its ecommerce revenues (it expects online sales to grow 40 per cent to $11.5bn for the fiscal year to January) but they remain a relatively small portion of its total sales, which were $486bn last year.
The threat to the big mall-based department stores is not only from the internet. The sales data also show that the biggest “dollar stores” such as Dollar General, which sell very cheap items to a relatively poor clientele, have increased sales faster even than Amazon, from a much lower base. While e-commerce remains the biggest challenge to the big mall stores, the shrinking of their market as middle-class incomes stagnate is also a serious problem for them:
Department stores in malls will mostly be opening on Thursday afternoon this year. Much is at stake. The retailing sector as a whole is growing. Even if Amazon, Walmart and Home Depot are excluded, the market cap of the rest of the sector has remained constant. But the cost in terms of lost jobs, or defaulted debt, should malls be forced out of business cannot yet be counted.