How the 2010s Changed Retail Forever

The retail industry—from big box stores to malls, from legacy brands to startups—changed completely since the 2010s rolled in. And the rise of e-commerce was just the start.
December 19, 2019 7:01 PM UTC
The retail industry—from big box stores to malls, from legacy brands to startups—changed completely since the 2010s rolled in. And the rise of e-commerce was just the start.
Illustration by Mark Matcho

After the Great Recession, things were supposed to get better for retail.

As the 2008-09 financial crisis fueled the worst economic downturn since the 1930s, American shoppers abruptly pulled back on spending. When they did open their wallets, they traded down. Retail sales fell 3.6% in 2009, according to the National Retail Federation.

The carnage lifted certain retailers catering to deep frugality: Dollar General boomed as many sought to get cheaper items and save on gas by not having to drive to a Walmart, while T.J. Maxx found a whole legion of new shoppers looking for fashion brands at much lower prices. Others, especially department stores and specialty apparel chains, reeled.

The conventional wisdom in 2009 held that as the economy improved, shoppers would revert to their old habits. But they did not. Fast-forward to 2019, and discount chains remain among retail’s brightest spot: Dollar General has nearly doubled its store count to 16,000, while T.J. Maxx and Marshalls’ store count jumped 50% to 2,400 locations.

As Dollar General chief executive Todd Vasos told Fortune recently, “Saving now is more chic than ever.”

But frugality alone doesn’t explain the massive transformation that has permanently reshaped an industry that represents about 21% of the U.S. economy. After all, Gap and J.C. Penney have closed hundreds of stores, while Sears is bankrupt, and none of those names are, by any stretch of the imagination, high end.

Rather, that frugality was turbocharged a decade ago by technology that was beginning to change how consumers shopped.

Instead of driving from store to store or calling retailers individually, shoppers could do a Google search to access information about prices and products from their computers and phones. Once they found the perfect budget-friendly item, they could place an order through their phones or computers, permanently changing the dynamic between retailer and shopper.

“It’s become far easier to compare prices and to compare services,” says Joel Bines, managing director of consulting firm AlixPartners’ retail practice. “It basically put power into the hands of consumers they didn’t have before.” The shift compromised many retailers’ profit margins, making them play it safe, and exacerbating their problems later.

That tech-driven browsing, along with Amazon’s ascent, deepened the already abundant cracks in retail’s pillars: too much of the same merchandise presented in the same way at countless retailers, slow reactions to new trends, boring stores, and too many of them. (According to CoStar Group, in 2016, there was about four times more retail space per capita in the U.S. than in Britain.) Customers had more choices, and knew it.

“The retail experience hadn’t changed in 70 years,” quips Columbia Business School adjunct professor Scott Lux.

Retail bankruptcies, from Sears to Barneys New York and The Sports Authority and Radio Shack, have picked up in the past few years. And in 2019, some 9,000 stores have closed, albeit many of a small size like a PaylessShoesource.

Yet for all the doom and gloom, at a macro level, retail is undeniably booming: According to NRF projections, retail sales (excluding gas, cars, and restaurants) should come in $3.83 trillion, using the midpoint of its 2019 forecast, or roughly 50% more than a decade ago. So it seems many chains are figuring it out. The so-called retail apocalypse has been overdramatized.

Bargain hunters at every level

In a sign of the times, Dollar General eclipsed Macy’s in total sales last year, while TJX, the parent of so-called off-price chains T.J. Maxx and Marshalls, did so in 2014.

Shoppers have always sought cheaper prices, but the proximity and ubiquity of dollar stores—which are tiny compared to a Walmart—to customers, the faster turn of inventory at off-price chains, and the unpredictability of what you mind find, set them up to boom.

But there is also a larger cultural change at play here. Even more affluent shoppers have joined in on the bargain-hunting action. Nordstrom has more than tripled its Rack chain to 243 locations from 72 a decade ago and that business is now doing much better than its luxury stores are. And the number of outlet malls, which house stores such as Saks Off Fifth and Nike clearance stores, has grown to 390 in the United States from 323 10 years ago (and they’re not just relegated to the boonies anymore).

“The stigma of shopping at off-price retailers has completely disappeared,” says AlixPartners’ Bines. That explains why a Neiman Marcus shopper today won’t think twice about mixing a vintage item bought at ThredUp or even a piece from Target.

If apparel, and by extension department stores like Macy’s, J.C. Penney, and Kohl’s, which are all heavily reliant on clothes, has been the epicenter of retail’s problems and the endemic discounting problem, it’s because of the unrelenting sameness of many chains’ offerings and lack of investment in brands. The same old same, old doesn’t work with today’s shoppers.

The decade made it clear that new products, even in apparel, will catch on and help a chain skirt the discounting trap. Exhibit A? The Gap brand, which has been unable to resort to anything more interesting than 40%-off offers for a decade. Its revenue is down $1 billion since 2009. On the other hand, Lululemon Athletica is the ultimate example of how a clothing brand can still strike a chord: It invented the athleisure category. The company recently said it expected net revenue for FY 2019 to come in at around $3.9 billion.

Lululemon wasn’t the only brand to take advantage of the stasis that afflicted many legacy chains unable to reinvent their business model. They also left an opening for a new breed of online retailers like Stitch Fix, which has deftly used tech to predict what customers might like. The company racked up $2 billion in sales last fiscal year, revenue that could have gone to the likes of J.Crew if it were more in tune with its shoppers.

What’s more, the fear of stale store presentations at department stores and other mass retailers has driven many top brands, both young and new, to take matters into their own hands. Inadequate upkeep and a sea of sales signs made for a “sloppy environment,” as Steve Barr, consumer markets leader at PwC, puts it. Nike, Ralph Lauren, and Levi Strauss have shifted much of their efforts to their own stores and websites. And many new brands, including Allbirds, Untuckit, and Warby Parker, have also gone directly to their consumers, avoiding wholesale altogether, to great success.

Retail renaissance

Even with all the success for online brands, one key takeaway lesson from the past decade in retail is that products and stores still matter. If nicely set up, adequately staffed, and convenient—or, at least, fun—stores still draw shoppers. That includes millennial shoppers who should, in no way, continue to get blamed for killing department stores. But we’ll get to them in a second.

Looking back to the dawn of the decade, it seemed that Internet shopping might take malls out. But that’s no longer true. “Malls were for browsing, but now it’s done online before heading out,” says Columbia Business School’s Lux. And that has meant people visit fewer stores when they do head out.

That makes it all the more crucial for brands to turn their stores into destinations consumers want to spend time in. Ulta Beauty has been one of the big success stories of the 2010’s, even though it’s often a strip mall staple. The beauty product retailer figured out that shoppers like to try products out from a bunch of brands and enjoy a bit of playtime. The old model of putting a salesperson in charge of what a customer can try, long the approach at fancier stores, left an enormous hole Ulta ably filled.

That philosophy extends to the big-box players. Best Buy, Walmart, and Target have proved that even mammoth retailers can reinvent themselves. As detailed in Fortune this summer, Target has spent $7 billion remodeling stores and dropping stale brands in favor of creating new ones. And the company has done that much more effectively than the department stores, leading to one of the most successful turnarounds in retail history.

Target, like Walmart, has also made its fleet of stores work in sync with e-commerce. Shoppers can reliably pick up an order in-store or curbside, providing a bulwark against Amazon.

“For brands and banners [chains] to succeed, they need to have a fully integrated offering, between the digital and stores,” says PwC’s Barr.

As for Best Buy, which easily could have gone the way of Circuit City, Borders, and Radio Shack. It beat problems back by reinventing its business so it wasn’t just selling goods consumers could find anywhere. Best Buy turned its stores into service hubs, created space for up-and-coming electronics brands, and expanded into new product categories.

Now back to the millennials. It turns out the generation is keen on going to brick-and-mortar stores as long as there’s a compelling reason to do so. They’ve helped bolster a whole new generation of brands, including Glossier, Neighborhood Goods (a small department store concept with lots of store tech and a rotation of brands), and Outdoor Voices.

“A store is no longer just a place to go pick something up but it’s a place to feel connected and engaged,” says PwC’s Barr. That holds whether it’s a place to find good deals, unique products, an appealing environment, or just to commune with like-minded people. And it will hold regardless of what new factors come to shape retail in the decade ahead.

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