The Pandemic Will Change American Retail Forever
Story by Derek Thompson
The big will get bigger as mom-and-pops perish and shopping goes virtual. In the short term, our cities will become more boring. In the long term, they might just become interesting again.
1. THE BIG ACCELERATION
To see how the pandemic is already reshaping American retail, you don’t even have to go outside and count storefronts. Your receipts and credit-card statements tell the whole story.
On Thursday, the U.S. Commerce Department reported that retail spending in March collapsed by the largest number on record. Travel spending—including on airlines, hotels, and cruises—is down more than 100 percent, if you include refunds. Department stores and clothing stores are facing an extinction-level event after having experienced years of decline. Pockets of resiliency and even strength include grocery stores and liquor stores, which in March had their best month of growth on record. Home-improvement spending is up as well.
The year 2020 may bring the death of the department store, marking the end of that 200-year-old retail innovation after decades of decline. Macy’s has furloughed more than 100,000 workers. Neiman Marcus has filed for Chapter 11. More legacy department stores and apparel retailers will almost certainly follow them to bankruptcy court or the corporate graveyard. As these anchor stores shutter, hundreds of malls that were already wobbling in 2019 will be knocked out in 2020.
2. THE FLATTENING OF THE AMERICAN CITY
The growth of online shopping and big business will be hard to ignore for many city residents. It will make cities feel more desolate and less singular, for the next year or longer.
Curtailed immigration will hurt immigrant families and communities first and foremost. It will also change the face of American cities. Immigrants aren’t just more likely to start companies than native-born Americans. The companies they start are twice as likely to be restaurants and retail outlets like bodegas and nail salons. In some places, like San Jose, California, 60 percent of all new companies, including new restaurants, are started by immigrants, according to research by the economists William Kerr and Sari Pekkala Kerr.
3. THE END OF THE GOLDEN AGE OF RESTAURANTS
Exactly 100 years ago, the U.S. dining industry faced its first extinction-level event with the ratification of the Eighteenth Amendment, which banned the production and sale of alcohol.
While it lasted only about a decade, Prohibition cast a long shadow over the restaurant landscape. The war on alcohol forced hundreds of fine-dining establishments to shut down, by eliminating their most dependable source of profit. The number of restaurants in the U.S. still tripled in the 1920s, in part due to the rise of “lunch car” diners that specialized in food that kids could enjoy with their sober parents, like hot dogs, hamburgers, and milkshakes. As the economist Tyler Cowen explained in his book An Economist Goes to Lunch, the ban of alcohol sales put children at the center of our culinary culture. For decades, he contended, Prohibition infantilized the American palate, making every meal fit for a kid.
4. THE ALL-DELIVERY ECONOMY
The spatial logic of a plague is unforgiving. If crowds are toxic, then stores cannot be crowded. And if stores are off-limits to the masses, then mass commerce must shift to the internet.
In the past month, online shopping has gone from a regular habit for a minority of consumers to a crucial part of America’s recreational infrastructure. One-third of Americans bought groceries online in the past month, and tens of millions of them did it for the first time. Walmart deliveries have skyrocketed, and Amazon now delays deliveries of nonessential items to deal with unprecedented demand. Online shopping’s share of total retail sales has been increasing approximately one percentage point per year, but a recent UBS analysis predicted that COVID-19 will immediately increase that share from 15 percent to 25 percent—a decade of change concentrated in several months.
Dan O’Connor, of Harvard, believes “offline” activity will increasingly be geared to online delivery, and will transform almost every aspect of urban retail. He pointed me to Hema, a Chinese supermarket chain operated by the e-commerce and technology giant Alibaba. Hema triples as a high-end grocer, restaurant, and fulfillment center. When you walk into a typical store, it looks like a Kroger or Whole Foods. But Hema delivers more than half of its volume through an app, making it more like a walkable fulfillment center than a traditional grocer. “If you asked me where retail is headed, I would encourage you to look at China,” O’Connor said. “If we’re going through 18 months of social distancing, which makes crowded stores impossible, then we need to significantly repurpose our retailers for increased delivery.”
5. AFTER THE FIRE
The song of American urbanization plays on an accordion. Americans compressed themselves into urban areas in the early 20th century. By mid-century, many white families were fanning out into the suburbs. Then, in the early 21st century, young people rushed back into downtown areas. But in the past few years, American cities have begun to exhale many residents, who have moved to smaller metros and southern suburbs. As with so many other trends, the pandemic will accelerate that exodus. Empty storefronts will beget empty apartments on the floors above them.
In the decade after the Great Recession, American cities became very popular—and very expensive. Neighborhoods that were once jewel boxes of eccentricity became yuppie depots. Wealth elbowed out weirdness, and rents soared to suffocating levels that pushed out many of the families and stores that made the cities unique.
But the near death of the American city will also be its rebirth. When rents fall, mom-and-pop stores will rise again—America will need them. Immigrants will return in full force when a sensible administration recognizes that America needs them, too. Cheaper empty spaces will be incubators for stores that serve up ancient pleasures, like coffee and books, and novel combinations of health tech, fitness, and apparel. Eccentric chefs will return, and Americans will remember, if they ever forgot, the sacred joys of a private plate in a place that buzzes with strangers. From the ashes, something new will grow, and something better, too, if we build it right.
Source: The Atlantic