America’s Retail Tipping Point

The New York Times recently published an article which posed the question, “Is American Retail at a Historic Tipping Point?”

The article recognizes that trends of a shrinking brick-and-mortar retail industry have been building for a long time, quoting economist Barbara Denham as saying, “That is the tipping point, right there… It’s like the Doppler effect. The change is coming at you so fast, it feels like it is accelerating.” The change that Denham is referring to is the growth of e-commerce, which went from increasing at a pace of $30 billion per year on average in 2010 to 2014, to an increase of $40 billion per year in 2014 through 2016.

The author, Michael Corkery, points to luxury goods that are “displayed in shops like museum pieces,” along with empty storefronts, crumbling malls, and retail layoffs to paint a grim picture of the state of retail in the U.S.

But here’s the thing.

While retail stores laying off employees is certainly unpleasant for those employees, it doesn’t necessarily point to economic doom and gloom – either for the retail companies who are doing the downsizing, or for those finding themselves newly unemployed.

For one, as pointed out by the NYTimes, e-commerce is seeing huge levels of growth, and that growth is speeding up. E-commerce growth hit a two-year high in the U.S. during the summer of 2016. That growth has outpaced the total retail market for the past six years.

It’s easy to point to e-commerce giants like Amazon as the crusher of all brick-and-mortar retail stores, but that depiction has a few problems. First, Amazon is adding jobs like crazy thanks to their growth and focus on lightning fast shipping times, which require lots of warehouses being located close to where people live. While Amazon can’t single-handedly make up the difference in retail jobs lost, they are certainly trying their best. Second, brick-and-mortar retail layoffs don’t necessarily indicate a pessimistic future for bigger retail companies like Best Buy and Macy’s, but rather a shift toward focusing more online sales, and embracing the role of their physical locations as showrooms.

Another important factor to consider is that while Amazon accounts for a very significant chunk of e-commerce growth, there is still a lot more online sales goodness to go around. After all, e-commerce was nearly a $2 trillion chunk of the U.S. economy in 2016, and is only expected to grow.

Consider also that unemployment in the U.S. is quite low, having recently returned to levels not seen since before the Great Recession in 2008. Combine this with the fact that the U.S. entrepreneurship rate is high. The Kauffman startup index, which measures the rate of new entrepreneurs, is at the fifth highest point it has been in the last 20 years, estimating that more than half a million people in the U.S. start a new business every single month. It doesn’t take a tremendous leap to put these two facts together and determine that one of the reasons that unemployment is low, is because people are starting new businesses.

So to answer Michael Corkery’s question, yes, American retail is absolutely at a historic tipping point. But it is not, as his article suggests, tipping into the abyss. Instead, this may be the first time in the history of American retail that it’s a better idea to start your own online retail business than it is to work in someone else’s brick-and-mortar retail business. If you need help creating a online retail business, reach out to us today!