Divergent Currents in Retailing

The transformation in retailing from bricks and mortar to online with home delivery is still underway.  Within that transition, costs are being pared and young consumers’ tastes are better accommodated.  Online has captured about 15% of retail sales, and its share is growing a point or two each year.  Arch rivals, Amazon and Walmart are coming at the retail market from opposite directions.  Amazon, the online giant is extending its logistics strategy into physical stores such as Kohlsand Whole Foods. Conversely, Walmart is expanding into online sales.

In the first half of January 2018, hundreds of employers shared Federal Tax Reform benefits with their employees.  Tax reform induced improvements in pay have been announced for about 2 million employees so far.  Typical were $1,000 to $2,000 bonuses for all employees and hourly base pay increases of about $1 per hour.  A few firms included improvements in maternity leave or extra contributions to 401(k)s.

Industries included in the pay and bonus expansion are airlines, banks, energy companies, manufacturers, entertainment outlets, telecom forms, pharmaceutical makers, automobile retailers, food retailers and others.  There is a long list of wage, bonus and benefit hikes collected by Americans For Tax Reform.

Walmart announced an increase in base pay to $11 per hour covering all hourly employees and potentially bonuses of $200 to $1,000.  As well, Walmart expanded maternity and parental leave and added a grant of $5,000 for adoption expenses. Walmart’s pay increases apply to almost 1 million employees.  Walmart’s ability to share so generously is largely a result of the significant reduction in federal business taxes.

Unfortunately, Walmart scheduled a few sobering announcements at about the same time.  Walmart-owned Sam’s Club will close 63 locations, reducing the Sam’s Club fleet to 597 stores.  Some of the shuttered stores will be converted to e-commerce fulfillment centers, employing a strategy similar to Amazon’s use of retail space at Whole Foods and Kohls.

As an efficiency move, Walmart and Kroger’s revealed that they would eliminate checkout lane cashiers at 500 stores.  The cashiers would be replaced by scan and pay automation already familiar to those who have used Walmart’s and Kroger’s self-service checkout areas.  The small-scale closure of Sam’s Club locations and the reduction in cashier positions dampened the otherwise upbeat news on pay and bonuses from Walmart.

Elsewhere in retailing, the depressing news of planned store closures deepened.  More than 12,000 major chain stores are expected to close in 2018, 33% more than closed during 2017.  Many of the chain stores are large, employ hundreds of people, and are the anchor tenant in malls.  The loss of an anchor tenant such as Macys, JC Penny, Target, Kmart or Bon Ton can strip a mall of its vitality and reduce consumer traffic to levels below that needed to sustain other mall tenants.  Most likely to file for bankruptcy in 2018 are Sears, Bon-Ton Stores, Bebe Stores, Destination Maternity Corp. and Stein Mart.

In 2018, some malls continue in a gradual death spiral.  Online competitors, uncontrolled costs, and changes in consumer tastes intensify the challenge for brick and mortar retailers.  Traditional brick and mortar stores account for 85% of retail sales, but their other sales are growing slower than online sales.  Younger consumers (Millennials and Gen Z) spend more of their paychecks on screens, smartphone data plans or streaming entertainment services.  Boomer-favored generic or prestigious merchandise does not appeal much to Gen Z and Millennials.  Current fashion stores like Zara, Uniqlo and Forever 21 are squeezing the bottom line of department stores like Macy’s, JC Penney, Victoria’s Secret, Pink and Bath & Bodyworks.

Retail space rental, promotional costs, “excess” inventory, and staffing can kill a store that lacks a steady traffic of potential buyers.  However, when a chain like Walmart increases wage rates, it signals it has a winning retail formula that it is willing to share with its employees.

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