Online retail therapy puts squeeze on America’s high-street businesses

As Americans prepare for Thanksgiving next Thursday, many will be looking forward to some retail therapy towards the end of the week.

Black Friday, the day that follows Thanksgiving, traditionally marks the start of the Christmas shopping season and an opportunity for savvy shoppers to snap up some bargains.

Ads have been running around the clock promoting discounts and promotional deals ahead of what is typically the busiest shopping day of the year.

But in recent years the retail world has been struggling to adapt to the winds of technological change.

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Americans are still among the biggest consumers in the world, but the advent of the internet has dramatically changed the way they shop.

The emergence of online shopping has reshaped the world of American retail, as internet giants led by Amazon attract business away from the high street.

The story of the changing face of American retail can be seen in any city or town across America, where retailers are shutting their doors and shopping malls nurse empty units.

In the last year there has been a wave of closures and bankruptcies as traditional retail stores struggle to adapt. In September, Toys “R” Us declared bankruptcy under debts of $5 billion. Macys is closing 100 stores across the country amid falling sales, while Gap announced plans to close 200 underperforming Gap and Banana Republic stores, choosing to instead focus on its better-performing Old Navy stores.

Demise of the old economy

On New York’s Fifth Avenue, the sale of department store Lord & Taylor’s flagship outlet to a start-up company offering shared office space to millennials encapsulates the rapid rise of the new economy and the demise of the old.

Out-of-town shopping malls, which have long been a feature of American life, are also struggling as more shoppers go online. The problem is compounded by America’s surplus of retail space – the country boasts about five times the retail square footage per person than the European average.

As the traditional bricks-and-mortar retailer has declined, a new wave of online sellers has risen. Giant among these is Amazon, founded in 1995.

Originally an online book retailer, the Seattle-based company has been expanding its reach rapidly and has cemented its position as one of America’s most-recognised and best-loved companies.

Millions of Americans have signed up to Amazon Prime, the company’s main subscription offering, which offers faster delivery and access to online streaming services.

But Amazon’s dominance has caught the attention of regulators amid concern that it is becoming too powerful – not just in terms of competition issues, but also in terms of its access to the personal data of millions of American consumers. Despite the efforts of many retailers to improve their online and e-marketing offering, Amazon continues to be the online marketplace of choice, clocking up $136 billion in revenues last year internationally, most of which were goods provided by third-party sellers.

It’s not all bad news for traditional retailers, however.

Biggest merger

While global e-commerce has been growing at a rate of 20 per cent a year, its share of retail trade remains minimal. Online purchases accounted for just 10 per cent of all US retail sales last year. One of the biggest mergers this year – Amazon’s acquisition of high-end grocery store Whole Foods for $13.7 billion – was evidence to many that traditional retail models still hold an attraction.

Amazon had been trying to enter the grocery delivery business for some time and analysts are waiting to see how it leverages Whole Foods’s large network of stores. Its announcement that pop-up stores showcasing Amazon’s products will be opening in Whole Foods stores in the run-up to Thanksgiving gives some sign of its thinking. Using Whole Foods’s loyal customer base to expand its grocery delivery business may be another boon.

While the US economy works through the most significant disruption of traditional retail models in decades, the migration to online may have other unintended consequences. The impact on the labour market is becoming clear with thousands of retail jobs disappearing each month.

Although e-commerce and the kind of giant warehouses that are used by distributors like Amazon do create jobs, they do not compensate for the loss of traditional retail positions as stores close.

Given that many of these workers are people who voted for Donald Trump, the challenge posed by technological advances to American retail workers may be another headache for the president.