The U.S. president has repeatedly attacked one of the most successful American companies ever, Amazon.com Inc. Several times he has taken to Twitter to excoriate the giant online retailer, whose chief Jeff Bezos owns the Washington Post, a newspaper that has published a steady stream of articles that have proven embarrassing to Donald Trump and his administration.
I will leave aside whether Trump is engaging in a personal vendetta driven by jealously or bad news coverage or taxes or concern for the Post Office or whether his behavior is worthy of comparison to Mussolini. All of you have opinions on those subjects, which I am unlikely to sway no matter how many words I expend today.
However, the issue of the cause of the retail apocalypse and how much of that we should blame on Amazon is worth considering. Stores both large and small have been suffering pressure as America’s shopping tastes change. But it is too easy -- and in my opinion, intellectually lazy -- to simply shrug and blame all of retail’s ills on Bezos & Co.
A fuller exploration of the retail landscape begins with a quick recap of how we got here:
Begin with the 1990s, when a rapidly expanding U.S. economy and red-hot stock market contributed to a huge construction boom across the board -- housing, office and retail. By the time the dot-com implosion hit in 2000, America had a huge excess of retail space, surpassing all other developed nations by a wide margin. A Credit Suisse analysis last year found that the U.S. had 23.6 square feet of retail space per person versus 11.1 in Australia and 4.6 in the U.K.
Other studies reached similar conclusions. With so much more retail space than any other nation, a retreat was all but inevitable. The downsizing of America’s retail footprint is likely to continue until it becomes more appropriate relative to market demand.
The overbuilding goes a long way toward explaining the slowdown in mall construction and all those empty storefronts in Manhattan and smaller cities alike. But there are many other forces at work. American consumer price sensitivity is nothing new; before Amazon showed up, Wal-Mart was blamed for the demise of smaller retailers.
To me, price sensitivity is not a cause, but an effect, a response to decades of wage stagnation. Wal-Mart in the 1980s and 1990s, and Amazon in the 2000s and beyond were merely the smartest players at capitalizing on that opportunity. Placing the blame on capitalist retailers gets the causation exactly backward. They responded to market forces they did little or nothing to create.
A stretched consumer isn’t the only force at work; consider the impact of demographics. Millennials, now the largest cohort numerically, spend very differently from their materialistic baby boomer parents and thrifty grandparents. They prefer experiences over consumer goods, tend not to own but prefer to use, stream or rent. Services such as AirBnB, Uber, ZipCar, Spotify and Netflix help to explain a chunk of retailers’ woes. I don’t know when retailers will catch up to millennials’ spending habits, but do not doubt this has been and will continue to be a major factor.
It isn’t just younger consumers who are changing their consumption habits: Much of America now understands that sport shopping (aka retail therapy) isn’t especially fulfilling. Many of us have figured out we would rather purchase time-saving services than goods and baubles.
There are some silver linings to all of this retail negativity. Any time capital gets misallocated it leads to suboptimal results. The retreat of retail looks like one of those examples.
The upside is that sometimes cities and towns can adapt. Portland, Oregon, is renovating and converting older mills and factories into housing, theaters, restaurants and artisanal one-off stores. New York City’s Tribeca neighborhood did something similar in the 1980s.
The challenge, though, will be creating the “experience factor” that malls need to survive, and to make them into destinations. The food courts you may recall from the malls of your youth are being replaced by entrants like Urban Space, filled with unusual and delightful restaurants -- and not a national chain in the bunch.
Not every location will be able to pull it off. If the local economy is hurting -- as so many are outside of cities wired into the knowledge economy -- a retail rebirth will be tough. But in others there is a unique opportunity to convert old retail stores and malls to more productive uses -- community spaces, apartments or offices.
Amazon isn’t responsible for the decline of physical retail; it is a symptom, not a cause. Just remember that the next time the president takes to Twitter to beat up on a great American company.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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