Apocalypse of brick and mortar retail shops?

05. 12. 2018

E-shops will not cause it, and who knows if it ever occurs.

"Retail store" is a linguistic euphemism. It's a juggernaut employing a good part of the population in brick and mortar stores, transformed into shopping shrines where not only simple shopping, but also a large part of our social life takes place. This Holy Grail is in jeopardy. At least that is how all economic and marketing forums have been interpreting it recently. Flexible English even created the beautiful word "retailpocalypse". All that just because the online businesses dramatically increase their revenues, and by the way, an online store is still only a retail store. All this is the hallmark of the digitization of society. In the discussions debaters have already suggested the future use for all the abandoned stores. So: Will the brick and mortar stores close in this country soon as well?


Deloitte has recently published a major study on the subject. It took place in the United States, and we are accustomed to perceive the US development as a precursor of things to expect here in Europe. The truth is that both large and small chains in the various categories of consumer goods are suffering and closing their branches. The sector of smaller private shops is also affected.

However, the study has seen a "bigger picture," and as it is with all major changes, the current development is more than just rocket growth of e-shops (whether or not it is still possible to call Amazon an e-shop). The change is driven largely by consumer behavior which is determined by the development of the economy, the labor market and the cost of living in general.

The United States are doing well but the society benefits from it in diverse ways. Unemployment is record low and income grows for all; only for higher income groups it grows faster than for those on the opposite pole. That would not be such an issue yet, worse is the fact that in the last decade, "mandatory" household spending - on health care, education, housing – has been growing dramatically. For the low-income group it is a real struggle to last with enough money until the next pay day, for a group of middle income people there is at least the sense of deterioration of living standards. Since both of these groups account for about four fifths of all consumers in the US, there is a real strong pressure to reduce household spending on food and everyday consumer goods.

And that brings us right back to retail. The revenues of US businesses are growing, not only those online, even brick and mortar store revenues are growing, although at a much slower pace. The actual decline (and closing stores) affects only one particular segment. The stores that can be called "value for money", traditionally the strongest retail segment with good quality products, great promotions and sophisticated discount systems that have worked so well over a long period of time. On the other hand, the growth takes place in two groups of brick and mortar stores, the first group simply concentrates solely on low prices. The other group is "the expensive one".

How come? The lowest income groups shop online significantly less than the others, and cheap stores benefit from it.  In contrast, wealthier consumers, although they feel at home online, visit expensive brick and mortar stores to experience what e-commerce cannot offer.

So, growth is still here, the apocalypse is nowhere to be seen; just as it is in capitalism, a regular evolutionary change. Its impact and its future shape will, as always, be determined more by customers and their possibilities and needs, than just the dreaded dictation of new flourishing technologies. Even they have their limits; online businesses encounter obstacles today, e.g. distribution logistics alone. The streets of American cities are overcrowded by trucks of courier services every day.


What about in our country? In a country where more than half of the society is currently satisfied with their income? And "value for money" stores can hardly be recognized from the discount stores. Not that there isn’t  pressure on lower prices, but our sales people have developed a very specific mix of discount events spiced up with questionable quality of goods, especially in food. In brick and mortar stores, we are more likely to see a cautious treading towards a "more attractive shopping experience", combined with maintaining online prizes. The long-term trend of closing smaller stores continues, but there are other reasons for this occurrence. Shopping centers are just blooming, and online in this country, to some extent, plays a role of a comfortable shopping. An ideal symbiosis, in the Czech Republic, we have found our golden middle way again. At least for now.