Ms. Real Estate Solves Reader Problems
SAN FRANCISCO-Wouldn't it be convenient if someone had clear, intelligent answers to most of your CRE-related questions? Problem solved. Nina J. Gruen, a.k.a. Ms. Real Estate, a.k.a. the principal sociologist overseeing market research and analysis at Gruen Gruen + Associates, is here to answer readers' questions.
Why are Stores Failing?
Dear Ms. Real Estate,
In your opinion, Ms. Real Estate, what is the primary cause for the downward spiral of in-store retailing-the internet or the lack of innovation on the part of retailers?
-A Retail Record Corrector
Dear Record Corrector,
Due to the speed of technological change, even those retailers that have spent significant dollars on the integration of their internet and in-store sales have experienced a decline in sales. And those chains that are led by financial, not retailing experts face even greater challenges. Retail is and always has been a consumer oriented business.
The decline in retail sales can also be attributed to changes in shopping patterns on the part of upper income shoppers, but even more importantly the decline in the size of America's middle class. Many upper income shoppers have shifted their consumer expenditures from things to experiences, and this is likely to be an ongoing trend. However, of even greater consequence and the primary challenge faced by many retailers has resulted from the significant decrease in the number of middle class shoppers, who previously rang up the largest proportion of sales in stores like Sears, Kmart, JC Penney and Walmart.
In May 2016, Pew researchers published "America's Shrinking Middle Class: A Close Look at Changes within Metropolitan Areas," which found that the middle class lost ground in nearly nine out of ten US metropolitan areas that were examined. The Pew study investigated the change in the percent of lower, middle and upper class households between 2000 and 2014. What the Pew research found was in the 229 metropolitan areas examined, lower income households increased by 70 percent and upper income by 75 percent, while there was an 89 percent decrease in the percent of middle class households. Unfortunately, it is unlikely that gains in technological innovation will be able to make up for the significant decrease in America's middle class shoppers.