This is a very popular question right now, and I wanted to try to get some answers for myself. This article is about my conclusions as to what has happened and where we are heading. I don’t have all the answers, and I won’t go into a ton of depth here. This is more of a brief overview that allows us to step back and see the bigger picture.
I admit, it’s so strange seeing all these retailers and malls that we all grew up with closing stores and facing potential bankruptcy. What is going on?
Approximately 10% of our workforce are in the retail industry. Since I was in this field for 20 years, many of the people I know are also in this field. Most of the people I know are being affected by this shift in our economy. This shift also affects the businesses that were historically dependent on foot traffic, because people are not out shopping quite as much. The simple answer to the question of what is happening is a shift in the marketing mix; namely “place”. In the traditional marketing mix, place deals with the distribution aspect of business. Distribution helped our nation grow, and now we live in a time where our distribution has helped other nations’ economies grow while we see ours shrink.
A lot of people believe in a Communist conspiracy theory that is supposed to explain why we are faced with this dilemma. However, if you knew the history of Mexico you would see that Communism wasn’t popular until Capitalism created an extreme divide between the rich and poor. Communist revolutionaries took over by force, because they became the majority. It seems to be a natural consequence of greed.
Don’t get me wrong, I believe in Capitalism. However, I believe in some levels of regulation to protect competition. This isn’t a political post, so I won’t head in that direction. Let’s go back to the economics lesson I started with.
The past 100+ years has seen various forms of distribution. Westward expansion and growth was fueled by steel and the railroads between 1885 and 1900. Once products could be shipped to the west, the cities grew around strategic ports. During this time, roads were constructed and semi-trucks were invented. Most of the products you could buy were from small stores and markets.
In 1956, the first shopping mall showed up along with suburban growth. Shopping malls and strip malls became a very popular way to get consumer goods into the hands of people. DHL was founded in 1969 and FedEx in 1971. These companies focused on a different form of distribution where the commodities came in packages straight to your doorstep. The population continued to grow, and cities began to expand.
To increase sales and gain a competitive edge, in 1989, outsourcing became a major focus. Companies could leverage labor in foreign markets to drive the cost of goods down and gain a price advantage in the market while increasing profitability for shareholders. That’s why we saw declines in US manufacturing jobs and increases in products that were “Made in Elsewhere”. Then in 1992, the Internet and Personal Computers had started to rise rapidly. Within a few years, businesses began experimenting with ecommerce. This was the next big shift in distribution.
Ecommerce opened up everything. It was fast, efficient, convenient, and cheaper. In 1994, Amazon was founded and initially only focused on books. The efficiency of shopping online drove prices down. That drove profits down for traditional retailers, and that caused wages to drop and layoffs to start happening. If you owned a huge beautiful building, your overhead made it impossible to compete with a website. The US consumer started to care less about the in-store experience and more about saving money.
Today, Amazon is set up like a virtual department store making it a competitor to places like WalMart and Target. Zappos has become a virtual department clothing store. Netflix and Redbox killed Blockbuster. iTunes killed music stores. DVRs and online TV has affected TV commercials. Email affected snail mail. Online universities have affected traditional university enrollment. Uber has affected auto sales. Fiverr has affected designers. On and on we go. The virtual store experience has become more common than the in-store experience because it is cheaper. It’s a supply and demand thing.
The other 90% of professions aren’t hurt quite as bad, but there is still an impact. Industries that are funded by taxes have been cut back due to this lack of trade at higher price points. Service businesses that were anchored next to retailers are hurting. Some things like healthcare, legal, army, police, entertainment, personal care, gyms, bars, clubs, and other businesses where people are physically involved aren’t hurt as bad, but I’m sure they all feel it. The distribution channel of the Internet is a huge shift that we feel more today than ever due to the rise of smart phone usage.
The businesses that will start up and thrive in the future will have to attempt to compete on price by following this trend of shifting to online sales, or they will have to have a noticeable difference in quality. However, a lot of luxury brands are also being severely affected. With less money circulating, everyone is impacted at some level.
These displaced workers are starting new careers, moving to service jobs, moving to distribution jobs, joining Amazon, or are venturing out as small business owners. It’s an interesting time for everyone. The people who are starting retail businesses will need to learn to compete online and have products that are not mass produced. These small businesses will most likely stay small, because if it is something that has a high demand a company will outsource it and sell it cheaper.
Today, web developers are like the architects of the past. Instead of building physical stores, web developers are creating virtual ones. Instead of the customer going to the market, the market is now on their phones. I expect that people will continue to try to figure out how to move the different industries into this distribution channel to lower their overhead costs, and this will continue to displace workers. Ultimately, this race to the bottom is the thing driving the division of the rich and the poor. Instead of doing business with people, we’re doing business with computers and in the process, we are the ones eliminating the middle class. The rich still get their profit, but the middle-class person becomes poor because their job gets eliminated.
The only way to stop this trend is to be willing to pay more and do business in person. Unfortunately, I don’t think enough people will do that to shift this momentum. We’re living in a global marketplace which is lowering the prices of just about everything, but the wages and workers are also falling. The money we used to have we send to another country. Seem extreme? Think about it. Who are you trading with? Are we trading with each other, or are we trading with people in other countries?
Cut out the distributor for a moment. Where is the product you are buying coming from? The reason the US grew was because we traded with each other. The reason Brazil, Russia, India, and China are growing is because we are now trading with them. And we have been for almost 30 years. Unless you have a business that forces you to trade with another US business owner, the money leaves. Wealth is created from production and trade. The US manufacturer would make the product, and the US retailer would sell it.
Today, our products and services come from everywhere. Our economy is shrinking, and theirs are growing. Overall, this isn’t a horrible thing. I’m glad other countries are developing. My only point is that business has changed and it will probably never be what it once was. We are globally and digitally connected to each other now. Outsourcing continues to grow, and retailers are in a race to the bottom. The industry I worked in the past 20 years has changed dramatically. That’s one of the main reason why STEM and Digital Marketing has become a major focus. That is the economy we now live in.
There are opportunities for a great “Made in the USA” product, but it won’t be easy. Service businesses will need to become more lean and efficient to compete. Small business owners will have to step their games up in terms of experience to get people to come in. Golf courses and tennis clubs will shrink with the middle class. Sports will shift towards eSports for the same reason.
So how do we get off this downward spiral? It’s tough, because we love the things that brought us here. We love our phones, our computers, our internet access, and the lower prices of things. We love the virtual social experiences more than getting together in person. The only way to slow down this trend is to intentionally choose to shop small. As we invest more of our dollars in our local businesses than virtual ones. Yeah, in the short term we’ll get less stuff. But we’ll create jobs that pay livable wages.
Microsoft is like Boardwalk on the Monopoly game board, and we all know that the more you spend money on the Boardwalk square the less everyone else has. But instead of a roll of the dice, we are all staying at Boardwalk by choice. We need to choose to stay at some of the other spots on the board. Instead of going to Amazon for a gift, we need to visit a small store. Instead of going to McDonalds for lunch, we need to go to the local diner. Instead of watching Netflix, we need to go to the local restaurant. Little decisions like that over time will protect the middle class we value. Will it happen? It’s up to you! You have to decide whether or not you’re willing to pay a little more to support your neighbors or if saving money in the short term is more important to you.
So, there is no conspiracy. This is just supply and demand at work. We’re not victims. We can learn to compete. We just have to want to. You have to say no to some things in order to say yes to others.
In the next ten years, I think that the more likely scenario is that more companies will learn to compete online. There will be more balance between the in-store and online experiences. A lot of the entry level people who used to work in the stores will be behind the scenes helping with distribution. The service businesses who deliver the best experiences will survive. And there will be a greater shift toward online shopping. The trick to all of this is remaining competitive. You’re going to have to learn new skills and adapt. You’re going to have to create a shorter distribution channel than you have now.
The only thing I know for sure is that things will continue to change, and we must change with it. We must adapt. The jobs aren’t coming back. The jobs are changing. Be ready to learn new skills.