The days when people took trips to the mall in search of a new sweater, the latest CD or the newest book, have been replaced by silent scrolling on a multitude of websites for the same item. While the rise in online commerce has proved to help consumers, shops have begun to shut down, led by the inevitable pull of bankruptcy. One of the main causes for the failure of these stores can be attributed to one electronic commerce giant, Amazon (NASDAQ: AMZN).
Amazon started in 1994 as an online bookstore by CEO and Founder Jeff Bezos. As notated in their logo, Amazon has, quite frankly, allowed people to buy products from A to Z. Amazon has now sold multiple products online, from electronics to clothing. Amazon's main revenue comes from electronics (18%) and home and kitchen categories (15%). Other increases to Amazon's revenue was the selling of apparel, food and health products, in that order. This signifies the success in selling consumer packaged goods (CPGs).
The easy possibility of buying products quickly, as well as having them shipped directly to you is something that it hard to beat with physical stores and malls. This fact is only reinforced by the American consumer's loyalty to Amazon Prime. A subsidiary service that began in 2006, Amazon Prime is a membership that offers free two-day shipping and discounted one day shipping for a flat yearly rate of 99 USD. The benefits of Amazon Prime don't stop there however; consumers also have access to Prime Music and Prime Video, allowing them to listen to the latest music and watch shows for an unlimited amount of time. Amazon Prime's hold on the market is not lost on America; in 2016, it was reported that 20% of all US consumers were Amazon Prime members. Finally, Amazon's hold on the online market may be stronger than most think. As of 2016, Amazon accounted for 53% of online sales growth in the United States; every dollar that Americans spent online led to Amazon gaining more than half of it.
The failure of brick-and-mortar stores, or physical retail stores, due to the increased focus on electronic commerce can be seen everywhere. Brick-and-mortar giants such as Walmart (NYSE: WMT), JC Penney (NYSE: JCP) and Macys (NYSE: M) have begun to face shutdowns because of the lack of foot traffic in the present day. This lack of foot traffic in literal retail stores have been attributed by some as the 'Amazon Effect.' Due to the impact of Amazon, stores like JCPenney is closing 140 stores, Macy's is closing 100 stores and Sears (NASDAQ: SHLD) plans to close 150 stores. While these were once places consumers would not hesitate to go to for competitively low prices, these stores are now rendered as useless, diving deeper into the oblivion of bankruptcy and lack of necessity. In fact, every year, closings and bankruptcies of brick-and-mortar stores increase. This further proves that investing in online commerce, especially Amazon, has very lucrative benefits.
The effect of Amazon is not lost on these former retail giants however. Amazon's hold on internet retail has forced some retail companies to increase their presence on the internet as well, in turn, fueling their success in their physical stores. Macy's CFO, Karen Hoguet states that "Our customers buying online love to return in store...they love to shop in store, buy online. So we are, I think, forever going to lose some of that Macys.com business when we close a single-store market."
Perhaps most companies can learn from the American electronics provider, Radio Shack. Beginning in 1921, Radio Shack became the neighborhood location for cellular devices, headphone jacks and camera accessories. Given the increase in internet retail providers like Amazon, Radio Shack has experienced decline over the years, leading up to their second bankruptcy declaration this year. Dr. Shih, a specializer in business evolution, stated that ""Originally, they served a niche market, and they actually developed loyal following with hobbyists...[But] the technological trends have changed so that people don't use the discrete components, things like the amateur radio have lost their following. I would say for the last 20 years, they have been struggling to find a new audience."
It's clear that the bankruptcy of Radio Shack, once a electronics retail giant, is possible. For other brick-and-mortar stores like it, a future of failure seems probable, given the increased consumer relationship with internet commerce. It's clear that if companies do not shape up and find a strong presence on the internet, two things can occur: eat up the market or be eaten.