Economics

As E-Commerce Grows, Department Stores are Dying Out

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Customers fight over Black Friday sale items at Walmart.

As Thanksgiving approaches and people stock up their food pantries for the big meal, retailers are preparing themselves for their biggest day of the year: Black Friday. One company that is looking to make a rebound after a streak of recent losses is Toys-R-Us. In September, the company filed for bankruptcy as their long-term debt now totals over $5 billion [1].

As one of the world’s largest toy store chains, Toys-R-Us joins a list of other retailers that have been forced to take this proactive measure to try and save their company. Gymboree, Payless ShoeSource, and rue21 are other notable retailers that have had to file for bankruptcy in just this past year. In addition, there are thousands of retailers that have had to close stores and lay off employees in an effort to cut costs [1].

Why are retailers doing so unsuccessfully recently? It all starts with the fact that they are competing with online shopping and a worldwide powerhouse in Walmart.

Shoppers are now making a majority of their purchases online. A survey annually conducted by an analytics firm found that, for the first time in history, more people shop online than in stores. Shoppers in 2016 made 51% of their purchases online, as compared to 48% in 2015 and 47% in 2014 [2].

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2016 marked the first year online shopping took over as the most-used method of shopping.

In addition, the National Retail Federation predicts that online retail will grow between 8-12% this year, which is three times higher than the growth rate of the wider industry. The Census Bureau proposes that e-commerce sales are poised to be in between $427 billion and $443 billion this year. In comparison, brick-and-mortar retail, which is composed of typical retail stores, is expected to grow at just 2.8%, slower than the average rate of growth for the overall industry [3].

As technology has grown, so has people’s laziness. They can now shop in the comforts of their home, and no matter how much retail stores try to replicate that for their own stores, they won’t be able to match online shopping’s convenience.

However, even with all the failure that retail stores have been having recently, Walmart has still been able to grow as a company. In fact, they are making more now they ever have before. How are they accomplishing this feat? Well, it all starts with their outlook on their company.

While other companies are so focused on how the profit and loss statements for their company and how much debt they are in, Walmart focuses on how they can save people more money. The companies that are failing are the ones that constantly worry about the numbers and their profits. Instead, Walmart puts all of their focus on how to best run a business that will attract customers.

What can retailers do now to turn their businesses around when the industry they’re in as a whole is declining so quickly? Well, they could adapt their business mindset towards Walmart’s. Their current mindset is most likely that they are just a business trying to sell products to people. They could start to cater to what their customers really want and what they can afford. Until they make this change, retail stores may continue to have a streak of failures and the industry may be obliterated altogether.

[1] https://www.nytimes.com/2017/09/19/business/dealbook/toys-r-us-bankruptcy.html?&moduleDetail=section-news-2&action=click&contentCollection=Business%20Day&region=Footer&module=MoreInSection&version=WhatsNext&contentID=WhatsNext&pgtype=article  

[2] http://fortune.com/2016/06/08/online-shopping-increases/

[3] http://www.businessinsider.com/national-retail-federation-estimates-8-12-us-e-commerce-growth-in-2017-2017-2

[4] https://www.forbes.com/sites/louisefron/2017/05/31/why-wal-mart-is-winning-in-a-losing-industry/#12dd75bc44d5

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