The bricks and mortar retail world can historically be divided into "Upstairs" retailers (think Saks Fifth Avenue ) and "Downstairs retailers (think Dollar General). I have been tracking store closings for the last two years and from what I see, it seems that it is the "Downstairs" retailers that are growing while it is the "Upstairs retailers that are shrinking.
Case in point is the most recent Chain Store Age Daybreaker which has two contrary headlines:
Barneys is a major fashion destination for upscale shoppers. Five Below caters to low-income shoppers, teens, and tweens. Why is high-end Barney's reducing space while low-end Five Below is opening new stores?
Similarly, Dollar General is planning to open 950 outlets this year while the legendary Lord & Taylor recently closed its famed Fifth Avenue store. And that's not all, Ralph Lauren and Tommy Hilfiger have closed their flagship stores as well while Dollar Tree, Aldi, and TJ Maxx have announced openings.
So, why are "Upstairs" retailers struggling while, for the most part, "Downstairs" retailers are prospering? I see four primary reasons:
1. "Upstairs" retailers in major urban centers like New York City are struggling with the high costs of rent. The steady loss of customers to e-commerce retailers like Amazon is taking away just enough revenue to make the cost of renting expensive, commercial real estate untenable.
2. Shifting generational shopping patterns are having an impact. Younger shoppers are more value conscious due to coming of age during and after 9-11 and the Great Recession. They would rather find a bargain online and pass on the "excitement" of paying more while visiting an "Upstairs" department store.
3. In addition, younger shoppers, unlike prior generations, do not have a love affair with driving. They would just as soon stay home and shop from a comfortable chair as fight the crowds on city streets and suburban highways.
4. High-end shoppers are far more likely to have the tools necessary for digital shopping than low-end shoppers: Credit and access to the Internet. That means that lowest end shoppers have to shop where they can pay cash and can afford the offerings. Accordingly, places like Dollar General and Five Below have a clear advantage.
So, what is going to happen next?
More and more digital-savvy shoppers are going to become consumers and that means that e-commerce providers will continue to grow while "Upstairs" bricks and mortar retailers will continue their decline. "Downstairs" retailers, however, will continue to prosper as they are immune to e-commerce competition; their shoppers simply don't have the means to shop digitally.
What do you think?