Are we facing a retail apocalypse?
That’s the story that’s being told. Payless, Radio Shack, Rue21, and The Limited have all filed for bankruptcy this year, as have five other retailers. Over 4,000 physical stores have been impacted. There are fewer than 750 Kmart stores open now, down from over 2000 at their peak, and their owners plan to close more stores. Since late last year, general merchandise retailing has shed over 80 thousand jobs. The phrase, “Retail apocalypse,” even has its own Wikipedia entry.
The reason most often given for the shuttering of physical retail space is the growth of online shopping. Why bother with driving to the mall, finding a parking space, enduring the glares of the changing room attendant, and waiting in a checkout line when you can order six styles and colors of a new sweater and return five of them with a prepaid label? I wrote about Amazon’s online dominance a couple weeks ago. They have the only app on my phone where I can get almost anything.
But maybe the death of retail, like the death of Mark Twain (which he heard of while traveling in England), has been greatly exaggerated. It’s true that general retailing has lost 80 thousand jobs – out more than three million, about 2.5% of the total. Curiously, they’ve added 20 thousand jobs back in recent months. The economy lost almost twice as many retail jobs in 2012, and then went on to create even more.
General Merchandise Retail Employment. Source: St. Louis Fed
This doesn’t look like the death of an economic sector – like coal mining in the ‘80s and ‘90s, or railroad employment in the ‘50s and ‘60s. Those sectors lost 80% of their jobs. This looks more like an adjustment that’s being spun into a larger story, probably bigger than it deserves to be. Remember, total employment in the US is close to 150 million.
Total Retail Employment. Soure: American Geographical Society
Be wary of memes like this that become click-bait, listicles that force you to click through again and again. They’re good at selling pop-up ads, but the medium is really the message. We think in terms of narratives, but sometimes the narrative acquires its own momentum that can diverge from reality. JC Penney announced in February that they would close 138 stores, but after the announcement so many customers came in to support the stores that they had to delay the closings.
There’s a natural bias in the news business towards negative stories. “If it bleeds, it leads” has been a reliable way to sell papers, and that bias can be frightening. Just remember: our investing needs to be driven by the best data – not by our worst fears.
Douglas R. Tengdin, CFA