The economic roller coaster is certainly taking
a lot of folks on a wild ride these days. Those
people who attempted to maximize the opportunities
of the Boom, and overextended themselves are suffering
badly, the wealthy have seen significant valuation
evaporation, the poor are still as poor as ever
and the cautious have some money but are now even
more cautious. Bail-outs, sell-outs and market fluctuations
are the buzz words of the day.
In West Palm Beach, Florida the Simon Property
Group allowed their troubled Palm Beach Mall to
face a foreclosure lawsuit, even though analysts
say the Company is cash-rich and could easily pay
its bills. But despite their reportedly cash rich
status, malls everywhere are suffering. Chicago-based
General Growth Properties, the nation's second largest
mall owner recently filed for Chapter 11 bankruptcy
protection because it was not able to get its debt
holders to give it more time to refinance.
And still some prosper. Loillard, Inc. the makers
of Newport cigarettes announced a first quarter
profit increase of 5.7%. Newport engages in a mix
of traditional and internet marketing with aggressive
opt-in direct mail and email promotions, a “rewards”
program and an interactive website.
These headlines from recent news show it’s
not all bad news:
Google first-quarter profits up 8.9 per cent
ICBC First-quarter Profit Up 6%
Gilead Sciences First-quarter Profit Up
Goodrich profits up
Wells Fargo Expects Record First Quarter Profits
U.S. Bancorp's first quarter profit is up 60.3 percent
Amazon reports 24% increase in profit. The North
America segment, which is made up of Amazon's U.S.
and Canadian Web sites, saw sales jump 21 percent
from a year ago.
Export Development Canada (EDC), has announced its
combined financing and insurance volumes reached
$17.4 billion for the first fiscal quarter of this
year, an increase of nearly $1 billion over the
same period in 2008.
McDonald's says its first-quarter profit climbed
nearly 4%
Bank of America Corp. announced Monday that it made
more money in the first quarter of 2009 than it
did in all of 2008, blowing away analysts' predictions
(Critics doubt that this is indicative of what the
BofA’s 12 months earnings will be this year
as significant amounts of the profits reported were
one-time events and the Banks exposure in bread
and butter mortgages remains high and the default
rate continues to rise)
But all is not pretty in the Market as Auto, Cellphone
Makers, Other Banks, Coca-Cola, GE, 3M, NBC-Universal,
Am-Ex, Whirlpool and a host of other companies report
declines in sales, growth and profits. Real Estate
re-valuations have caused crushing blows to investors,
mortgage holders and government tax rolls.
Clearly it is a mixed market. It may be too soon
to call them trends but here are some things I see
building momentum.
1. Increases in overall internet usage in all areas.
a. There are many reasons for this, completely independent
of the current economic turmoil. As more of the
world gets better internet access it is inevitable
that there will be more people exploring the internet.
b. The internet has lots to offer people from every
walk of life and as the press keeps reporting dramatic
increase in users and wildly inflated figures for
valuation of internet properties, increases in users
and uses will continue.
c. Current internet users will find more ways to
use the internet.
d. Internet shopping, for example, was likely to
increase regardless of the economy however, economic
turmoil has likely propelled more rapid adoption
as individuals seek more ways to get more out of
their spending dollars, thus the 24% rise in Amazon
profits. (those profits are a result of improvements
in technology, more product available and more interaction
among Amazon’s loose community of users as
well as the economy).
Online Shopping is good for the buyer and the
seller. Benefits for buyers include more choices,
save time (no strolling through miles of aisles,
no waiting in lines, no driving from store to store,
etc.) save travel costs (fuel, maintenance, etc.).
In general it is a more efficient process.
For retailers it is a significantly more efficient
process. Online retailers can avoid real estate
costs and employee costs. Even though retail employees
are some of our lowest paid workers they still represent
a significant chunk of the cost of running a store.
Converting stores from buildings to ecommerce creates
savings in almost every step of the supply cycle
from packaging and delivery to “floor planning”
(the cost of the value of the merchandise sitting
on a retail floor and the % of inherent markdown
caused by being on public display) . Even something
as simple as “last mile” delivery being
eliminated results in significant savings. The number
of steps in the sales process life cycle that are
eliminated or significantly reduced by ecommerce
vs. the cost of maintaining a physical store results
in reduced costs and increased profits for manufacturers
and retailers from end to end.
It behooves the majority of the players in the
full retail supply chain to promote ecommerce. It
simply makes better business sense.
Eliminating malls, strip centers, plazas and stores
– who is affected?
Who benefits?
Property owners, tax rolls, municipal planners.
In most case these players will all benefit. The
land and buildings will be re-purposed, typically
to better purposes. Malls for example have a large
real estate foot print. In some areas that land
will now better serve the community by being converted
to multi story housing or office space. In other
areas the space will be ideally situated for warehouse
distribution centers. In any event, in most cases
the property owner will benefit, the tax rolls will
not suffer and communities will be better served.
Who loses?
Retail employees. Not really. While the transition
may cause some discomfort most of those workers
will simply retrain for other jobs. The properties
won’t disappear. When the properties are re-purposed
there will be new jobs.
The marketing costs of retailing is changing as
well. Online marketing is still a nascent industry
struggling to find its way, but it is already clear
that the internet can reach more people, in a more
targeted manner, than conventional marketing. Ultimately,
online marketing will produce a higher ROI for retailers.
Environmental impact.
The environmental impact of ecommerce cannot be
overstated. When a million automobiles are suddenly
not being driven to stores the reduction in harmful
emissions will be huge. In less obvious ways many
other environmental benefits will be realized. Packaging
for retail items displayed in stores consumes three
times as much material and process as packaging
used for the same product shipped from a warehouse.
Just in shipping container capacity there is significant
gains. Simply put, you can fit a lot more product
in a container if it is not wrapped in retail packaging.
Jobs will be affected in every step of the process.
Retail packaging businesses will disappear. Mall
food court chains will disappear. Mall cops and
store security will disappear (and thus Hollywood
will lose one of their favorite lampoon targets).
All of this change has given rise to an entire
industry that enables shoppers to PROFIT from shopping
online. Dozens of internet companies have been founded
that allow shoppers to get cash back from their
purchases. Even better, it can be aggregated in
a manner that can easily earn a family a thousand
or two a year, and in affluent families, even more.
The online shopping portal industry has as many
different “flavors” as Ben and Jerry’s
Ice Cream. Some of them can be leveraged into full
time work at home businesses that earn six figures.
The internet continues to change our world everyday
and the current economy and its affect on retail
shopping is a clear example. Ecommerce and online
shopping will soon be as common as cell phones.
