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“When at first you don’t succeed, fix the blame quickly.”

News that Amazon.com is getting into the grocery store business through its stunning (proposed) acquisition of Whole Foods, seems to have finally awoken everyone to the dramatic (unrelenting) economic, social (and state sales tax) upheaval called “the Internet” – including its apparent implications on retail and other sectors of our beloved commercial real estate business. For all the hand-wringing and woe-mongering on cable, social media, and RECON gatherings, you’d think the gargantuan (Amazonian) “E-tailer” set up crude card table displays outside Macy’s, Best Buy, and Publix’s just last weekend – like some no -way-as-cute ET instantly blackening the economic horizon, ominously suggesting that shoppers “go home.”

Since posting his website in July 1995, Amazon.com founder, Jeff Bezos, has grown his once money-losing online book shop into one of Earth’s most powerful enterprises.  In April, Bezos became the world’s second-richest person, worth $76 billion.

He hardly seems satisfied:

• In addition to capturing 50-cents of every dollar spent online, Amazon attracts half the online shopping searches by American consumers.

 

• Its initial big screen movie venture, “Manchester by the Seas,” took home one of this year’s Academy Awards.

 

• The company is delving deeper into media outlets with its $50 million deal to stream ten Thursday night NFL games next season.

 

• There’s gossip too that Amazon will soon add ocean freighters to its fleet of trucks, airplanes, and Star Wars-styled drones.

While innovation and new jobs are applaudable, lots of folks wonder if Amazon is simply adding back jobs it helped eliminate?  MarketWatch estimates that Amazon will have obliterated 1.5 million retail jobs in the next five years. And with its push for driverless trucks, drone delivery, clerk-less automated grocery stores and more, the total number of lost jobs could exceed two million.

Is Amazon good for America (forget about “great”)? Critics remain snarky, skeptical (occasionally shrill) – but they’ve been joined (sub-superficially) by swelling numbers from Amazon’s once zealous, unabashedly anti-corporate fan base. To its detractors, Amazon hasn’t joined the Dark Side… it’s BECOME it – a behemoth “black hole” swallowing up venerable Sears, Penney’s, Bloomies and much smaller businesses without discrimination or conscience. To add fuel to this suspicion and fright, Amazon last May reportedly invited executives from popular brand makers like Nike, Oreos and Cheerios to a hush-hush meeting to convince them not to sell their footwear, chocolatey sandwich cookies, and alternative, whole grain finger food through Walmart and other big-boxes, but directly through Amazon! No word yet on the outcome of this brazen (possibly monopolistic) soiree, but nothing should ever again surprise us about Amazon or others unconventional, upstart game changers. 

Which brings us to the future of traditional retail space, and our (admittedly selfish) desire to keep it filled up. Will more “anchor” stores be abandoning neighborhood centers, hanging dry cleaners, pizza joints, vacuum cleaner merchants, and parking lot stripers out to dry? Will pesky drones condemn trusty shopping carts to the dumpster of rusty discards like pagers, bag phones, cassette players, Pez dispensers, and fanny packs? It’s hard to say when and if this retail revolt will peter out…but one thing’s for sure, the shift isn’t all that sudden… and not entirely Amazon’s fault! If blame is still required (or therapeutic), there’s plenty to spread around. Mavens of U.S. retail point to a number of retail-corrosive factors observable well before Bezo’s e-bookstores posted its first metatags and used paperbacks some 22 years ago.

To wit:

• Most online shopping is for physical goods, particularly clothing. In 2005, 3.6 percent of U.S. retail sales went to department stores; it’s now less than two percent. Credit card companies have oft-noted the shift in consumer spending from hard goods to soft “experiences” like travel, home services, health care and education.

 

• Retail’s woes go beyond changes in consumer behavior, however. Major changes to the U.S. bankruptcy code also went into effect in late 2005, shifting from “debtor-friendly” to “creditor-friendly” after successful lobbying by creditors (including retail landlords). The law now allows a maximum of 210 days for retailers to inform landlords if they are renewing leases or closing their doors. Before 2005, it was not uncommon for a retailer to be in bankruptcy for 18 months or so, but that’s no longer possible, meaning that Chapter 11 is now turning into liquidation more frequently.

 

• Declining retail sales and foot traffic began long before the recent recession. When it did hit, landlords lowered shopping center rent or gave better lease terms to wary retailers, a number of whom should have filed for bankruptcy during or shortly after the recession. Instead they held on, thanks to re-casted loans at historically low interest rates. Those debts are now reaching the end of their terms, meaning it’s time for retailers to pay their creditors. They can’t.

 

• Half of retailers currently filing for Chapter 11 are owned at least in part by private equity firms that once believed could buy a retailer, make the business more efficient while expanding its footprint; then sell the company or take it public at a much higher price. Such a rosy outcome hasn’t been so easy, particularly given the Internet’s relentless onslaught, and management’s unwillingness (or inability) to adapt or adopt to fierce (faceless) online competition.

Nor should retail’s demise be inevitable and foregone. Eighty-six percent of retail sales (excluding motor vehicles, auto parts, food service and drinking locations) are still made in brick-and-mortar locations. The online tsunami can be reversed or at least diverted if retailers become as creative and adaptive as Jeff Bezos and others.

Get this – last month, Amazon opened up its fifth brick-and-mortar retail bookstore in a trendy New York City outdoor mall (admittedly in a touristy big city like their other stores). The store occupies 4,000 square feet previously occupied by a Borders bookstore. Amazon’s store will have 20 associates and 3,000 books, all presented with their covers facing forward, with a placard featuring a customer review and bar code that can be scanned for pricing and additional information. Other stores include Whole Foods, Coach, Michael Kors, and two upscale restaurants – a “swathy” social magnet for browsers, bookworms, first-daters, foodies, folks “out for the day” … and likely discretionary spenders. Shopping is more than a means of acquiring the things we want and need; it’s also a meaningful social activity that appeals to our deepest, human tendency to gather together and interact (shopping and supping being the most popular “interactions”).

Stores will increasingly become places we visit not simply to pick up mass produced articles, but to design and co-create unusual or special things with the assistance of experts. Whether it’s customizing a laptop or designing the perfect bicycle, stores will be the focal place for such collaboration and customization. 

In addition to providing expertise and “personal touch,” smarter retailers will focus on making their stores “brand showcases,” with high production value, transforming consumers from mere purchasers of products into “brand disciples” – forming and sustaining relationships that play out in multiple consumer channels … online, in-store, mobile or elsewhere.  It doesn’t matter where purchases take place. What matters is that the consumer falls in LOVE with the brand and shares that devotion with others. 

Brick and mortar discounters will have no choice but to completely automate their store environments to remain cost-competitive. At high-end merchants, traditional stock clerks, cashiers and inventory counters will be the similarly replaced with technology. Front line salespeople, however, will be higher performing professionals paid considerably more money than today, and expected to sweep customers off their feet! These individuals will be intense believers in the brand, super-users of its products, and co-creators with their customers.