Retail stores getting "Trumped" by changes in business and government
The changing shopping experience and new Trump administration have left retail store giants struggling to keep their doors open. Sears and Macy's are a few of the many retailers that are closing stores in the coming years. Trump’s new economic plans may exacerbate the problems already faced by retailers through his tax reforms that could increase their operating costs. Part of Trump’s reforms includes raising taxes on imports, however many retail stores import most of their products. With Trump’s crusade against countries the U.S. imports the most from, businesses may have to raise their prices, decreasing the demand for goods. However, corporate tax reform could benefit retailers by decreasing the tax burden and increasing revenue. Despite this advantage, other parts of his tax reform such as the border-adjustment tax will levy a greater tax burden on corporate America and whose effects will be felt by the consumer. The Trump presidency has placed added stress on retailers in other ways as well. In 2015, Macy’s decided to stop selling Trump’s clothing line for men after Trump stated that many Mexican immigrants were rapists and murderers. Trump made these comments during a time when Macy was trying to increase their popularity among Hispanic customers, and also have said that they value diversity. In retaliation, Trump tweeted, “Those who believe in tight border security, stopping illegal immigration & SMART trade deals w/other countries should boycott @Macys.” In the wake of this backlash, Macy’s experienced seven quarters of declining sales as of November 2016. On the flip side, Walmart has tried to appease the Trump administration by releasing plans to create 10,000 jobs in the U.S. this upcoming year. Many companies like Walmart are making statements about job creation to ward off criticisms from Trump.
Despite the plans to create more jobs in corporations like Walmart, many retailers are facing store closures. Sears will close more than 30 Sears and Kmart stores in early 2017. After these store closures, Sears would have closed over 200 stores in this fiscal year, leaving them with fewer than 1,500 stores which is about 60% less than they had in 2011. Sears is one of several retail giants that have suffered from disappointing sales during the holiday season. Kohl's and Macy’s have also seen dramatic declines in sales which has similarly led to store closures.
The rise of ecommerce has also made brick-and-mortar less competitive in recent years. Amazon’s convenience, low prices, and increased variety have caused retail stores to cutback. In addition to Kohl’s, Macy’s and Sears store closures, Aeropostale has filed for bankruptcy in May of 2016. Retail analyst Jan Kniffen estimates that 1/3 of malls will fail in the near future. According to his predictions, 400 of the 1100 malls nationwide will close, and only 250 will maintain a profitable business while the remaining stores will struggle.
Retailers are trying to combat this age of Amazon with mobile-friendly platforms such as phone apps. Walmart is one such company trying to compete with Amazon by creating a mobile app as well as offering free two-day shipping nationwide. However, the business model of brick-and-mortar stores may be outdated. The ability of businesses like Uber, Amazon, and Netflix to quickly satisfy customers have made consumers now expect instant gratification, which is making brick-and-mortar stores even more unpopular. Consumers are now changing their expectations of businesses, and brick-and-mortar stores need to respond to these changes in consumer attitudes in order to stay relevant.
The decline in retail stores, however, isn’t anything new. Big-box stores like Walmart have been closing stores over the past few years, corresponding to the rise in popularity of Amazon. However, these store closures could have a domino effect that could fulfill Kniffen’s prediction of mall failures. For instance, the reduction in stores will decrease foot traffic to shopping plazas and malls because they will have an even more limited variety of stores. Therefore, this initial increase in store closures could cause more store closures as there will be less shoppers going to malls and shopping plazas. Still, the full scope of repercussions from these store closures have not yet been realized which has business analysts keeping an eye on the future of retail stores. Walmart, CVS, and Sears are just some of the retailers that are having to cutback but this list is far more extensive, including stores such as Target and Staples which have both had to close stores in recent years. However, discount retailers like T.J. Maxx, Marshalls, and Ross are continuing to do well because they have been able to deliver high discounts to consumers, making them still competitive in the retail markets.
The closures of brick-and-mortar stores may have far-reaching economic consequences. A reduction in retail stores can lead to a decrease in employment and as consumers’ incomes fall, the amount of consumer spending will decrease. Since consumer spending is a large part of GDP, a corresponding decrease in GDP can occur, slowing economic growth. As unemployment increases, more people will take advantage of unemployment insurance which will increase government spending and lead to increased government debt. However, the rise of e-commerce companies, can also lead to job creation which can counteract the effects above. Still, the impact of retail stores have yet to be determined as the future of these stores continues to unravel.