The ecommerce industry is widely seen as the big disruptor of traditional retail, but there are other potent forces at work in the retail sector.
Brick-and-mortar retailers have had difficulties staying afloat in the past decade, with many unable to survive seismic changes in consumer behavior. More physical retail stores are being shuttered every year. In 2019, retailers closed more than 9,000 stores, more than in 2018, which surpassed a record number of closings in 2017. This year, announcements from the retail sector already include plans for more than 1,200 additional closings, including 125 Macy’s stores.
Of course, Amazon and other online retailers have disrupted the industry by prompting a major shift in shopping habits. But Austan Goolsbee, a professor of economics at the University of Chicago’s Booth School of Business, says it would be a mistake to attribute the reshaping of the retail landscape to online shopping alone.
First, the ecommerce industry is not as dominant as generally assumed. According to the U.S. Census Bureau’s Quarterly E-Commerce Reports, online sales have grown impressively in the past 20 years, from $5 billion per quarter to nearly $155 billion per quarter. Still, online shopping still represents only 11% of all retail sales. More than 70% of retail spending in the U.S. is in categories in which the internet has little if any part, due to the nature of the product, such as cars and gas, or to regulations related to distribution, as in drugs and pharmacy.
The New York Times cites three major economic forces that “have had an even bigger impact on brick-and-mortar retail than the internet.” One is big box stores, which have taken market share from smaller stores. Four years ago, economists Chad Syverson and Ali Hortacsu at the University of Chicago found that the rise of warehouse clubs and superstores was steeper than that of the ecommerce industry. While Amazon added $38 billion in sales over the 14 years through 2013, Costco added $50 billion and Sam’s Club added $32 billion. Amazon’s growth rate was higher, but other, bigger physical retail stores posed more of a challenge. This retail trend continued in 2019.
A widening income gap in the U.S. has also played a role, as less of the country’s money is held by the middle class, meaning they have less to spend – and the traditional retail stores that serve them have taken a hit. The Pew Research Center estimates that since 1970, the share of income earned by people in the middle class has shrunk from nearly two-thirds to about 40% in the U.S. Retailers targeting high- or low-income shoppers have fared much better than those targeting the middle.
Finally, the retail sector has felt the effects of a shift away from acquiring things to a preference for services. Government statistics show that since 1960, Americans went from spending 5% of their income on health to nearly 18%. They also spend more on education, entertainment, business services and various products that aren’t sold in traditional retail stores. Based on the government’s Current Expenditure Survey, covering more than a century, this retail trend goes back decades.
As Goolsbee concludes, “the broad forces hitting retail are more a lesson in economics than in the power of disruptive technology.”
