According to a new report by the International Council of Shopping Centers (ICSC), up to 73,000 brick and mortar retail establishments could close in just the first half of 2009.
The ICSC says there was a net loss of about 33,000 retail establishments in 2008.
In making its prediction for 2008, the ICSC pointed to the national chains like Sears and Talbots, which already announced plans to close hundreds of stores, as well as the bankruptcy or liquidation of big chains like Circuit City, Linens’n Things, Mervyn’s, Bombay Co, KB Toys, and the Sharper Image.
As more and more brick and mortar stores close, sales on the net are bound to increase.
But maybe the opposite is true.
Maybe the Net is killing the brick and mortar retail channel.
Just like it is virtually impossible for a small store to compete with Walmart when they open in the same town, due to Walmart’s buying power, they can price their goods well below a mom and pop store or a small chain, how can a brick and mortar store compete with the Net?
With the lousy economy shoppers are ever more price conscience.
So in reality how can a Linens’n Things compete with a site like our’s LuxuryBedding.com?
My rent is $7 a year.
Their rent per store, is tens or hundreds of thousands a year depending on each location.
I have no employees, no insurance, no utilities, no inventory, no nothing.
So what that allows us to do is sell the same or better products, at wholesale plus a 20% markup.
The typical brick and mortar store sells with a 100% markup. They buy a product for $50 from the manufacturer and sells it for $100. That same product would cost $60 on our site. So the retailer would have to discount the product by 40% just to compete dollar for dollar with us, but they have all those fixed costs. So while stores sell their products at 60%, 70%, and even 80% off, they are losing money on each sale, simply liquidating their inventory and slowly putting themselves out of business.
Now take Luxurybedding.com and multiple that by the hundreds, no thousands and thousands of sites just like it, that you can comparison shop from your house, for the same Calvin Klein satin sheets, across thousands of sites, in a matter of minutes to find it at the lowest price. Not to mention, the fact (living in Florida we tend to forget) that is pretty f–king cold in most places during the busiest part of the holiday season (80 degrees here today, sorry northerners) and its a lot nicer buying your bedding off the computer and having the UPS guy drive through the snow and ice to get to you, than you having to do it.
Sure our site is a VERY small example of what your seeing in the world of retail, but the more you look at the numbers and study the economics, you have to reach the inevitable conclusion that brick and mortar model is largely doomed and it has the internet to thank.
And the most interesting part about this wonderful article is that most of the business owners out there DO NOT know how powerful the internet really is. Their inability to adapt will eventually drive them out of business, and if we, the domainers, don’t adapt as well we can kiss out power goodbye.
Re: LuxuryBedding.com
Do you have to carry merchandise and do fulfillment?
Or is the site more like an Affiliate site for someone else/
Thanks.
Patrick
The current recession is disguising (while accelerating) a marketing and business revolution. After the dust settles, retailing in 2010 will look as different from 2005 as 2005 looked from 1950.
And who owns the prime business addresses of this new economy? We do. Build a real business on these prime addresses and you’ll come out even more ahead.
Patrick
It’s a deal between the developer and our domain, we split the profits 50%-50%, he does all the order fulfillment and billing.
You can read more details about it on a previous post
http://www.thedomains.com/2008/10/06/so-what-is-a-click-really-worth/
and more unemployement…
Yellow Pages will be gone so are newspapers, and Brick and Mortars stores.
When shopping big screen at Best Buy, you can compare the prices online with amazon and if the stores do not want to match or even lower their prices with free S&H, they will lose business.
How are they going to win?
Physical stores are just window shopping now, check prices and….use the toilet.
One more observation,
go to a public library and check out the magazine circulation.
Notice the magazine are getting smaller and thinner ?
Soon, they will be all gone.
I see more people going to the library using free wifi, PC and checking out DVDs rather than reading books or magazines.
Innovation and Innovention will be the buzzwords for ’09. Retailers in my city, Kansas City, are closing left and right. I think that domains and SRS (short commercial real estate ETF) are great investments.
Great piece Mike–peerless logic, raw common sense. The text and its message seems to have a real Schilling-esque ring to it.
Agree with David, the recession will acccelerate the retail learning curve dramatically. Or atleast it should.
Brick and Mortars stores have problems even when selling there products on the net! It is vers hard to exist in being a online shop and selling your product in a mall like Sears. There is hardly a way to sell on and offline.
Sears can’t offer there products 20, 30 or 40 % cheaper in there online shop and ask 20,30 or 40 % more when selling in the mall.
You have to choose which way you want to stay in business. It is a hard choice to make when running a company the size of Sears, Dillards or any other Super Store in this size.
These company’s have thousands of employees which also have buying power as long as they have a job.
Being a domainer, I ofcourse see more happening towards all of our hopes for the future. But we should also not forget, we can only survive if others also stay in business.
Because if you only have a 7 dollar overhead for a domain per year means you have no employees, no shop rent and so on. That means less people being able to afford a “ Luxury Bed “ .
Hearing and reading about a bright future for us domainers still makes me worry when looking at both sides.
Like MHB said, the overhead for running an online store is so much lower. And ironically, brick and mortar will further wane, but shipping companies will continue to profit. I don’t have the facts and figures, but I would think FedEx, UPS, and DHL have been boosted considerably from millions of online orders shipped direct to home and business.
Customer service is a deciding factor as well between which online retailers retain customers. Price is obviously very important, but customer service to me ranks next. If I have a poor customer service experience, I immediately avoid doing business with that company again. If the customer support is good, then they will retain a loyal customer. That’s why we may only end up with one or two major registrars. The majority of them get a D+.
Check this out
http://www.petfood.com
and
http://www.petfooddirect.com
both offering 40% off…
Bye bye Petco
Petfooddirct is advertising so heavily on the radio, that how I know about it.
Duane
None of us will succeed if 10% or more of the US population are unemployed, having said that, if there is a fundamental change in the economy and brick and mortar stores future is clear, then jobs have to be created elsewhere.
Maybe some of the bigger US internet , computer and software companies can stop outsourcing all their customer and technical service centers and bring all those jobs back to America, just for starters.
Bricks and mortor stores shall surrive in there own niche areas.
We shall see many traditional stores close but we shall also see other organisations expand.
The internet is the way forward and more and more people do shop online but lets face it most people like to pop out to the shops to kill time and get the house so we shall never see an end to these stores but lets hope we see more traditional companies look at other avenues i.e. the web and lets hope they learn about direct navigation and keyword domains.
This shall help all of us to sell our great domain assets and grow our industry.
Well these are my thoughts.
Regards,
Robbie
Bricks and motar retail selling crap clothes and crap decorations will close. Stores selling commodity type items that can be found on the net will have a hard time competing with the Internet.
I think the stores that will do well will be stores where people like to touch items or sell stuff that people need right away.
We as consumers will have to drive further or find other places to shop as some of our favorite stores and restaurants will close.
I am seeing a pick up in sales to end users. I think small and medium businesses are looking for new customers and that means online. It does not mean taking a bigger ad in the newspaper or yellow pages.
So, they are seeing good, local geo + industry .com domains to be a way to have a better presence online.
Hang in there everybody, the domain industry will be one of the few bright spots for 2009 and businesses will come to us.
the pendulum will swing and service not price will be the deciding factor…when someone sells sheets for a 5 percent, then a 2 percent markup what’s left?
Customers will go where they can talk to a real person, not have to struggle to return it if they don’t like it and know its in stock and not coming in 3 weeks.
I don’t like buying “things” online but all my hotel rooms and air tickets have been bought online for years…
Good subject mike.
Nice article. LuxuryBedding is a very nice name, another great example of a generic domain name with a storefront. That’s exactly the business that I am in – affiliate marketing. Taking Generic domains and developing them. Gives the BrickandMortars a lot of competition while they have to spend more to maintain their trademarks.
The net gives the Mom and Pop shop a dynamic place to do business. A recession is a great time to invest in domain names and new ideas for business opportunities. But it helps if you have the capital to invest. That’s another weakness that a lot of others fail to do. While those with the capacity and knowledge of investing in domains will continue to flourish because they have stayed in the domain game even when the market was bad. This is because when the economy turns good those late to the game will be left behind and become forced to pay a premium for a great domain.
I agree with Rob, we are seeing a lot of people who prefer to come in to our bricks and mortar shop to look, feel and buy.
Online will also do well and with so much choice you need to have your ‘sticky’ to entice those to buy and come back again.
The current recession is doing what all recessions do, sorting out the bad from the good.
I’ve always had this idea for a “We sell nothing store” and now maybe the time to explore it.
Members only big box type store with just a few samples of EVERY product. No inventory. Members get to handle and test all products and “salesmen” tell you what’s good and what sucks.
The “check out” are computers with cashiers who buy the stuff for you online (via an affiliate link of course) then the product is shipped to your house.
So, no inventory, little bookkeeping, no deliveries… just membership fees and affiliate income.
Good idea?
this article is as silly and shortsighted as the retailers that are closing up shop.
my retail business is doing just fine. thats because i didn’t open too many locations without planning and get greedy thinking the real estate bubble would last forever. short sightedness is the reason B&Ms like Linens & Things and Circuit City are closing up shops, not the Web. In fact, CC and BigBox retailers have the cash to blow little websites off the map if they wanted to. Again they are just shortsighted and working with old formulas. When they catch up with the rest of us, your “$7 website” will be lost in the wave of cash and resources that the big boys have.
Web only business have to stay ahead of the curve, that’s the only way they will stay ahead of bigger retailers like Linens and Things. L&T may be gone, but it’s not because of the Web, it’s in spite of it. L&T killed themselves. We barely even helped push them off the ledge.
DO
I think you are greatly under estimating the effect the Web had on retailers.
When people can find identical products online at 1/2 the price they can get it at their local store, the local store can’t compete unless they find a nitch.
Did we forget what income level we are speaking about. The lower, upper lower & lower middle class are being hit really hard by economic slump and they are sticking to there local shops buying. And the local shops are also decreasing there prices they feel the heat from there vendors that keep going up in prices because import tax duties from the government. Being online as we are http://www.dollardealshopping.com. has it’s advantages as we are a discount brick & mortar store. We offer customers the luxury of buying at super discount prices and even cheaper if they buy in 2’s or 4’s of the same item which they won’t get at a best buy or staples. It’s like wholesale at the discount retail level. This is a niche that is not being push by other online retailers which will increase sale’s.
DO Domainer has it right! Web site owners love to tell everyone who will listen how their small web site is somehow changing the face of modern retail. Most of these people have no understanding how retail works and more important have no experience in retail. Statement like “When people can find identical products online at 1/2 the price they can get it at their local store, the local store can’t compete unless they find a nitch” are made from people who haven’t a clue about retail operations. There is always someone selling a product somewhere for 1/2 price and that will never change. Retail is more then just product and price.