Category Archives: Retail

Peak Shopping and the Decline of Traditional Retail

Cross posted at the OUP Blog

Shopping trips now comprise fewer than 9% of all trips, down from 12.5% in 2000, according to our analysis of the Twin Cities Travel Behavior Inventories. They are down by about one-third in a decade.

PeakShoppingGraph

When we want to eat at home but not prepare the food, urban dwellers have options. Some restaurants offer Delivery as well as Take-Away, others offer Take-Away but don’t Deliver, and some specialize in Delivery and avoid the storefront. For the customer who is not out and about, Delivery is more convenient. For the customer who is passing by the restaurant anyway. Ordering ahead and doing Take-Away makes a lot of sense, since there is no waiting for the delivery, the additional distance is small to nil, and tipping charges (or delivery surcharges) are avoided. Drive-thru is Take-Away for fast food (though you can still go into the establishment and take-away as well), which avoids the pre-ordering step, arguably at the cost of food quality.

When we want to consume non-food items, we also have options. There is of course the store.

The block I live on mostly single family homes with some duplexes and apartments, in a quiet Minneapolis neighborhood once had two small grocery stores, founded before the days of cheap at home refrigeration and before larger grocery chains took off. One is now housing, the other a small restaurant.

If we did not have easy access to the store, or its storage capacity limited in the number of goods, we could order from a catalog. The Sears Wish Book being one of many, and delivery, especially enabled by Rural Free Delivery, was as fast as the supply chain of the time (which is to say, as fast they could, but nothing like today). Door-to-door sales was also common in this period, as there would be more likely to be someone at home to sell to.

Catalogs were replaced by the Internet, and Sears by Amazon. Not only can we do the same thing differently, we can do many more things with the technology of the world wide web. Amazon is now nearing twenty years old, so we cannot really consider this new anymore.

The early dot com boom had a number of firms attempting same day if not same hour delivery. That didn’t work out as well as hoped, but like video conferencing and automated (if not flying) cars, it is an inevitable part of the future. There are lots of models out there: lockers, peer-to-peer delivery services (friends will pick up goods for you), and so on, but we already have 3 national networks doing delivery which are cost effective for many types of goods (USPS, UPS, FedEx), as well as specialists (local stores that deliver their own products (furniture, appliances, grocers, newspapers, milk), though one can certainly imagine some others emerging. Amazon is trying to patent pre-cognition, sending you what you are going to order before you order it.

What goods will you have delivered? Anything that is standardized, commodified, and whose delivery is easily automated. Amazon entered the market with books, and decimated the big box book sellers like Borders and Barnes and Noble (who had earlier acquired and then put-down many mall-based neighborhood bookstores (Walden, B-Dalton), which had themselves pushed out the independent neighborhood bookstores). For the book reader, we now have access to many more books than we did 20 years ago. For the nostalgic, we obviously lost something as well. Such is progress. Books were relatively easy kindling for this revolution, the ISBN code had been around for a long time. There is a long-tail of desired, but still standard items. There are economies of scale. They are easy to ship (and even easier to ship in electronic versions).

Music is seemingly similar. Once there was the neighborhood record shop, then the national (mall-centric) chain, then big boxes started to get in on the act. The technology of music changed faster than the book, moving from vinyl to tape to CD. In contrast with books, customers digitized and shared their music before the music industry could get their act together. Ultimately Apple’s iTunes brought prices down enough that listening to music is again more legal than illegal, and then new distribution mechanism (internet radio) changes the market again. Music is standardized, commodified, and the sequence in which you listen is automatically customizable using services like Pandora and iTunes Radio, among many others. While there is copyright-violating sharing of eBooks, it is not of the same order of magnitude as music. (Just search for your favorite book followed by PDF, you might be surprised to find it on a non-US website). Is downloading my own book illegal?

And then we get other items, all commodified though not digitized, that are amenable to the new distribution system: from clothing to lightbulbs, from batteries to baked goods, from Kindles to kites, which can all be ordered and delivered within 48 hours (if not sooner). Even custom goods get sold on places like Etsy. While used (and new) items both standard and non-standard are offered on Ebay.

All of these deliveries reduce my travel to the store, while increasing travel in the logistics supply chain, but generally reduce travel overall.

The decline of shopping travel is one aspect of the decline of personal travel overall, and has many knock-on effects. We need fewer roads. We need less parking. We need fewer stores and shopping centers. We inventory more at home (delivery might entail different economies of scale than fetching from the store). We might engage in other out-of-home activities to substitute for shopping as “entertainment”, but it won’t fully substitute.

Eventually we may have replicators, or pneumatic tubes, or good 3-D printers, and delivery as we think of it now will also decline. Or we may decide to consume less overall. But we can fairly safely extrapolate that, for a while, our 20th century retail infrastructure and supporting transportation system of roads and parking is overbuilt for the 21st century last-mile delivery problems in an era with growing internet shopping.

In a West End town, a dead end world

Now at Streets.MN: In a West End town, a dead end world:

“When I first heard about the new development called the Shops at West End (WE), the Pet Shop Boys played in my head. My vision of The West End came from London, roughly the area between Piccadilly Circus and Charing Cross. They are not similarly located, London’s version is substantially closer to the City (2.2 miles) than the St. Louis Park version is to Nicollet Mall (4.2 miles). The spatial location similarities fell short, but as in its London namesake, WE is a restaurant and theatre district. Minnesota’s version opened as a new open-air shopping center at the northern end of St. Louis Park, roughly at the Southwest corner of the Junction I-394 and MN 100 in 2009. Now almost 4 years old, how well does WE work?”

Cities sans shopping

StripCenter

Before the advent of civilization, there was little trade and few “stores”. We did not “store” much, we went and hunted or gathered what we needed. Once we invented agriculture, we invented storage, and surplus, and extended trade. We held inventory. Once we sold inventories from fixed locations in exchange for what become money, retailing was invented.

A while ago I wrote this:

Some nuance on language.

Shop: wiktionary: From Middle English shoppe, from Old English sceoppa (“booth”)

  1. An establishment that sells goods or services to the public; originally a physical location, but now a virtual establishment as well.
  2. A place where things are crafted; a workshop or hobbyshop.
  3. An automobile mechanic’s workplace.
  4. Workplace; office. Used mainly in expressions such as shop talk, closed shop and shop floor.

Store: wiktionary:  Etymology from Latin instaurare – (“erect, establish”). store

  1. A place where items may be accumulated or routinely kept.
  2. A supply held in storage.
  3. (mainly North American) A place where items may be purchased.

A shop is a place where things are worked on (and sold), a store is a place where things are kept (and sold). We go shopping but we don’t go storing, we come home and store the things we got from the larger store.

The idea of a store, where things that we may need are stored and distributed, is ultimately one of sharing community resources. I may need tools at some point, but rather than own all the tools I might need, there is a hardware store which sells things on a just-in-time basis to consumers. Who owns the hardware store (an individual, a firm, a cooperative) is secondary to the necessity of such a function to achieve economies of scale and ensure variety. If there were no stores, we would need to store everything we might need, and would need to truck and barter for goods with their makers, a much less efficiency system.

The idea of a shop is just the place where the trade takes place. Implicitly, a store holds lots of things, a shop is just a place for the transaction or some local repair work. This is somewhat lost in modern usage, but we still have hardware stores and grocery stores (which are relatively large), but dress shops, tailor shops, auto shops (which at least the first two are relatively small, and the latter two refer to where things are done rather than already made things are sold).

Both of these functions are necessary in urban systems. We  need both places to store items we may need in the future (and then acquire them when needed), and we need shop-places to work on things, making them, repairing them, altering them.  With the move toward a disposable society, where it costs more to fix things (which is a laborious process) than make them (which is often automated), the share of space devoted to shops rather than stores has declined. Proposition Joe is in a declining business (“Shine that up and put $7.50 on it… Shame to let a good toaster go to waste over a frayed cord” - Proposition Joe, The Wire)

Where these things are located relative to where people and live and work depends on the frequency of use. We want things we want frequently (e.g. milk), to be closer than things we want infrequently (e.g. furniture). But closer and farther are relative not absolute terms. They depend on context: location with respect to others (density or community demand), the cost of travel (technology), frequency of use (individual demand), and so on. Relative locations have changed over time as density, technology, and demand have changed.

While transactions are here to stay, if only for the raw materials needed to operate our 3D printers, “going shopping” in the physical world may have peaked.

American Time Use Survey, Purchasing Goods and Services Trends
American Time Use Survey, Purchasing Goods and Services Trends

The American Time Use Survey shows a drop in time spent “purchasing goods and services) from 2003 (0.81 hours) to 2008 (0.77 hours) to 2009 (0.72 hours) to  2010 (0.75 hours) to 2011 (0.72 hours). 0.09 hours per day may not seem like much, and this is only a few years trend, and there is some volatility, but it is consistent with what we know about the rest of the world.

To the extent I can operate in a de-materialized world, where fetching is replaced by delivery (especially by automated delivery), the amount of shopping (and naturally, the space devoted to shopping) will shrink. This is counter-balanced by the trends toward greater income (which has to be spent on something) and more time (which also has to be spent on something), for which retail may be an attractive solution. But this turns retail into a service and entertainment activity more than a transactional one.

In Chapter 9 of Planning for Place and Plexus, we write about: The rise (and fall) and rise (and fall?) of door-to-door delivery

Door-to-door delivery differs from door-to-door sales. The delivery requires only a catalog (be it paper or electronic) and some way of getting the order and finances from the consumer to the manufacturer and the goods from the manufacturer back to the consumer.

The enabler for this type of exchange was the U.S. Post Office’s Rural Free Delivery (RFD). The need for RFD lay in several factors. The remoteness of rural America meant 30 million residents had to travel to town to pick up their mail. The poor quality of roads made this difficult. Postmaster General (and department store founder) John Wanamaker pushed for RFD, which began in the 1890s, and after experimentation it was finally inaugurated in 1896 in West Virginia and ramped up to 29 states. By 1901, Congress made RFD permanent. RFD had several effects. One is that it gave added weight behind federal involvement in the good roads movement. Article 1, Section 8 of the US Constitution gives Congress the power “To establish Post Offices and post Roads”; though federal aid for state roads did not really begin until 1913, and did not get going until 1916.

A second effect is that retailers like Montgomery Ward, L.L. Bean, Charles Tiffany, W.A. Burpee, and of course Sears, Roebuck & Company took advantage of RFD. Especially with the addition of parcel service to traditional postal service, the mail order catalog business took off. Sears, which had been publishing specialty catalogs since 1888, issued its first general merchandise catalog, the “Big Book”, in 1896, whose Christmas edition came to be known as the “Wish Book”. The catalog truly was general merchandise, selling cars by catalog from 1909 to 1913 and bungalow houses from 1908 until the Great Depression. In fact, Sears didn’t open its first retail store until 1925, and the general Big Book catalog was discontinued in 1993 (Sears 2004), notably before the widespread adoption of the World Wide Web.

By the time Sears was scaling back its catalog business, mail order, along with toll free numbers, had become a booming industry. The emerging internet saw the rise of numerous e-commerce vendors. Amazon.com (founded 1994) and eBay (founded 1995) relied both on the post office, as well as express carriers such as Federal Express (founded 1971) and United Parcel Service (founded 1907). Jupiter (2004) estimates US online sales at $65 Billion, growing to $117 Billion by 2008, which will amount to about 5% of all retail sales, although the online sector is growing faster than traditional retailing.

Online research influences a great deal of offline purchases, but what is missing from online sales are things that are widely consumed without much research, like supermarket food items, as well as items like gasoline that are impractical to deliver. Many have tried to extend the reach of online purchasing to replace the supermarket, recalling the milkman of yore, but companies such as Webvan did not succeed. Webvan, which attracted more venture capital than any internet retailer except Amazon.com, delivered food to customers in seven cities, and established a new warehouse distribution system (Paying $1 Billion to Bechtel for this) in each of those cities. It acquired rival startup Home Grocer, but wound up spending money faster than it could earn it for long enough that it had to declare bankruptcy July 10, 2001, after the peak in the stock market bubble (but before 9/11). Even more ambitious, Kozmo.com, which served seven cities, promised free one-hour delivery for a variety of goods from videos to coffee and ice cream ordered online. Unlike Webvan, Kozmo.com never went public, lasting from 1998 to April 2001. Webvan like services (Peapod and Simon Delivers, among others) do remain, with lower capital costs. Whether these are profitable remains to be seen.

But we now see a second run at making delivery of even perishable items standard. Amazon, Google, and others are trying to figure out a workable model that is cheaper than the USPS, Federal Express and UPS for same-day delivery.

The more that is delivered, the less that is fetched. Shopping transitions from the real to virtual, and some, if not all, of the space that was devoted to shopping (14.2 billion square feet) will need to disappear. [For perspective, the Mall of America is 4.2 million square feet, of which 2.5 million is retail. So US retail is basically 3000 Malls of America.]

Fortunately, a lot of the retail that will disappear is, for lack of a better word, crap. We all know the dumpy strip malls that besot our landscape. First they will lower rents. Second they will be abandoned. Then they will be replaced. As with many of these processes, there will be a rich get richer phenomenon, the few remaining retail centers may continue to grow, as the experience of shopping (requiring many many choices) replaces the necessity of shopping. The commodity distributors will be replaced by commodity deliverers if the cost of distributions can be flipped so that delivery is cheap enough. But people still need to leave home, if only to get out of the house. Looking at things is a good excuse. This suggests artisans and crafts, and things that are more attractive in person than online will be the things that motivate us to leave the home-work axis for alternative destinations. The purchase of stocks like paper towels will rarely be enough to get us out of our chairs.

But with what will we replace the losers?

These are the tear-downs. To the extent they still have good transport access, they might remain commercial, or be appropriate for high density residential. On University Avenue along the Central Corridor, abandoned retail is being transitioned to new residential construction.

I don’t expect many parks or single-family homes, since these are still relatively prime locations from an accessibility perspective, and along transportation corridors. While the highest and best use may not be retail stores, there are still other activities that benefit from locations that are easily reached.