Commercial Darwinism

By: Steven Budzinski

Overview

“ALL THINGS MUST GO”. Written on neon backgrounds alongside 50% price offers,

these words now seem commonplace among big box retailers. With frontline stores

rolling back stores by the day, bloggers prophesizing the downfall of big box, and

the rapid growth of online shopping, one must wonder if this truly is the fabled end

for big retail? In the past two years, tens of For the purpose of this
essay, “Big Box” will refer
thousands of retail stores all around the country to a traditional brick and
mortar retail chain whose
have closed, including many well know retailers primary sales are not
online.
like Toys “R” Us which recently liquidated all 735 of

its outlets. In 2016 alone, Fung Global Retail and Technology, a retailing think tank,

announced that store closings reached a record 7,000, and industry bankruptcy

filings were 30 percent higher than 2015.18 All the while, U.S. retail sales totaled a

record $5.7 trillion in 2017, with Amazon and Walmart alike opening more stores by

the week with Walmart opening 25 in Florida and Texas, and Amazon recently

buying out Whole Foods.19 Indeed, we are in a grand transition state, but it is just a

transition of what kind of stores will be prevalent and not the total “retailpocalypse”

predicted. Although the retail market is still being affected by events from the past,

our new social choices, combined with harsh economic conditions will lead to a

weeding out of weaker retailers, but not the desolation of all.

Societal Changes
COMMERCIAL DARWINISM 2

From Brand to Style

Among many contemporary fashion changes is how we view brand name clothing. For

instance, common trends of the 2000’s included teens outfitted with clothes made by

Abercrombie and Fitch, or Hollister. These brands were sought after not because of

the way they looked, but because wearing those names was synonymous with

fashion. However, with a new generation keen on choosing their own clothing

preferences, the want for wearing brands has drastically decreased. A 2016 Business

Insider poll of American teens found that 56% of teens stated "Style" mattered most

for choosing clothing. "Price" came in second with 30.91%, and “Other” in third with

8.54%, which left only 4.55% to say that "Brand" mattered most.1 This shift explains

why large retailers such as Abercrombie and Hollister have seen a recent drawback:

the new generation is not interested in buying shirts with brand names plastered all

over them, and they are especially not interested in the upscaling of prices by mere

words.

Biggest Factor for Teens When Buying Clothing

60%

50%

40%

30%

20%

10%

0%
Style Price Other Brand
COMMERCIAL DARWINISM 3

Ironically, wearing the norm is now considered abnormal. Currently representing 143

billion dollars in spending capacity, newly admitted Generation Z is “on track to

become the largest number of consumers by 2020” says Jeff Fromm, president of

FutureCast a consumer trends consultancy. Generation Z already has a large impact

on the market and would rather define their fashion as individuals rather than

jumping on the brand name bandwagon.20 Best described by Michael Dart, partner in

A.T. Kearney's Consumer Products & Retail Practice, “each customer wants to define

their own style, creating an infinite number of niches for retailers to curtail to” and

ultimately a new evolution of store.2 Gone are the days of the consumer conforming

to the company, but now the reverse has occurred, with companies defining their

brands around consumer valued fashion trends.

One particular example of brand shift is Forever 21, a clothing outlet focused on

pumping out runway type fashion at relatively cheap prices. Since our new generation

wants both fashion and low prices, a company that can do both will obviously

succeed. Brand name fashion is often expensive, as you are paying for the exclusivity

of buying it. However modern buyers are more concerned with quantity rather than

luxury now. The Forever 21 brand name is hardly even found on clothes (besides the

tags) and has built their company strategy on having a fluid sense of style to define

the brand in place of their brand defining the style.

Convenience
COMMERCIAL DARWINISM 4

Now as much as new shoppers want to acquire more things, they also want to get it

whenever and wherever they are. And if online shopping industries can provide those

services while brick and mortar stores cannot, business will increasingly move online.

But it is not surprising to see why it has grown so much in the last few years. As online

shipping grows faster and begins to house more wares, it is only natural for people to

take their business to the web. According to a KMPG survey, 58% of consumers

choose online shopping instead of in store shopping because they can shop 24/7 for

whatever they want, and 40% of them because of their ability to compare prices on

items all in one spot.5 Often, it would be a hassle to have to drive from one retail

store to the next searching out the perfect buy, so most consumers would typically

have to find some variation of what they want at whatever listed price there was at

the retail store. But with the birth of ecommerce, consumers can now settle for the

best price on whatever product they specifically want to buy.

Take for example women’s sneakers. If a customer were to go to Macy’s for the

product, she would unfortunately have to settle for whatever style they were

featuring at that time, with little to no wiggle room on price, color, or brand. With

new online shipping though, the consumer can find the perfect blend of style, price,

and size, all from the comfort of her own home. No longer are people complacent

with wearing whatever they have, and as Michael Dart, partner in A.T. Kearney's

Consumer Products & Retail Practice stated previously, each consumer’s niche (i.e.

style and size) wants to be curtailed to.2 If stores cannot support these options,
COMMERCIAL DARWINISM 5

business will only naturally move towards stores that can support these online

preferences.

However, even with the fastest shipping on the market, With only 10% of
their sales online,
the customer will still have to wait at least a little longer
Footlocker proves
that a company can
to receive their online product rather than taking the
still be successful
hour to just drive out and get it themselves. This while reliant on
physical sales.6
consumer want to receive the product right away may

still leave room for brick and mortar within the hearts of customer, with Footlocker as

one such example of both niche shopping and physical retail. According to Footlocker

CEO Ken Hicks, “the key to Footlocker’s success is appealing to finnicky young

shoppers and their specific trends in taste” .6 When a customer goes to Footlocker,

they are obviously looking for shoes and with such a wide selection, they will most

likely find their fashion “niche” within the stores. Yet if a customer were to go to

Macy’s or another big box stores for shoes, they will find a larger array of total apparel

at the expense of a smaller spectrum of shoes.

The Exception: Walmart

In the news there is often talk surrounding the battle of Throughout this
“retailpocalypse”
online shopping and brick and mortar stores centered on
Walmart has
remained strong,
its two champions: Amazon and Walmart.7 And
with 6,363 stores
although it is clear to see from all the societal changes worldwide and an
expected cash
why Amazon is so successful, with all the changes reserve of 6.76 billion
dollars.8
COMMERCIAL DARWINISM 6

seemingly against Walmart, why have they too been so successful?

Walmart, first established in 1962, built its empire on being the one stop shop for all

at a discounted price. Typically, if a customer bought clothes, groceries, and car

supplies, they would have to visit several stores just to get through their shopping list,

let alone find the best deal. Walmart solved both issues by providing all life amenities

all in one area, along with price matching any market competitor. Although Sears and

other big box stores may have tried to replicate this, Walmart targets lower class

consumers, as discussed later.15 And from these success, Walmart has built up a

massive $59,664,000 amount of assets that other retailers do not have, to adapt to

the changing times.15

Social Changes Contribute to an Already Harsh

Economic Environment

From 2007 to 2009, the US and its effected retailers faced a massive recession that

either bankrupted or crippled hundreds of stores with at least 6,200 of them closed

for good .9 For the survivors, it was out of the frying pan and into the fire. The

aforementioned social changes demanded money that some retailers just do not

have. These “vulnerable retailers - those that are loaded up with debt and can't

afford to invest in new technology and new ways of doing business –are getting

picked off early,” says Nikki Baird, vice president of retail innovation at Aptos, “and

will likely disappear forever”.10

COMMERCIAL DARWINISM 7

And for the already struggling retailers, it’s a, lose-lose situation: either don’t adapt to

the changing social preferences and lose sales or bankrupt yourselves in an attempt to

modernize. Stores such as Toys “R” Us attempted to pitch an online adaption to the

increased demand for convenience, but ultimately “did not have the logistical support

or reserves to uphold these new necessities, and eventually went bankrupt” says Josh

Fetcher co-founder of BAMF media.11 On the other hand, Amazon and other

ecommerce industries who already had a stake in the changing social times (or

physical stores like Walmart that have large rainy day funds) were still able to turn a

profit despite the harsh economic conditions.

Partially due to the ripples of the Great Recession, and partially due to changing times,

the primary demographic for big box stores, the

middle class, is also shrinking. According to research

by University of Michigan professor of economics,

Dr. Mark J. Perry, the middle class has shrunk from

61% of US households in 1971 to only 50% in

2015.14 Obviously this shrinking in class will affect many sectors of the market but

especially those who specifically target the middle class. Retailers such as “Sears and

J.C. Penney, retailers whose wares are aimed squarely at middle-class Americans” will

thus likely see a buffeting in revenue.15 Discount stores like Walmart on the other

hand which “typically targets [the stagnant] working and lower class” will likely see an

increase in sales and explains why they succeed while Sears and J. C. Penny fail.15

Source: AEI.14
COMMERCIAL DARWINISM 8

Now as if it was not costly enough for revenue to fall, running costs for retailers has

skyrocketed in the last few years. With nearly four and a half million workers, retail

clerks make up the largest profession in America and are the cogs that keep

superstores operating.12 Normally these retail clerks work at minimum wage and are

only a minute part of a company’s expense. However, due to a change in heart of

politicians and the people who voted for these laws and law makers, the past few

years has seen an unexpected increase in minimum wages across the country. On July

23, 2009, the hourly minimum wage increased from $6.55 to $7.25 nationally, and just

last July, San Francisco reached $15 per hour with New York City, Los Angeles and

Washington D.C. expected to follow by 2020.13 This rise in pay, especially in big box

heavy metropolitan areas, will likely cull off the straggling retail stores or force them

to raise their prices. All the while, online stores who have a larger worker to sale ratio

will be able to keep up with their profit, as paying salaries for a few programmers will

become cheaper than paying multitudes of minimum wage clerks.

Source CNN.17
COMMERCIAL DARWINISM 9

Now what do all of these economic changes mean for big retail stores? Well it sounds

depressing, but likely the rich companies will get richer, while the struggling

companies will die off. Struggling companies just do not have the economic power or

resources to adequately survive the harsh conditions likely leaving their spaces vacant

for profitable companies to fill. As morbid as it sounds, think of it as Commercial

Darwinism with certain parts of a population dying off to leave room for the better

adapted to survive and prosper. And for the

Amazon is already
survivors, there will likely be less emphasis on experimenting with
cashierless “Amazon Go”
cashiers, and a consolidation of brick and mortar which allows Amazon Prime
customers to just grab food
stores, with less variety in generic shopping of
off the shelves and be
automatically charged.
food, clothes, and other necessities

Where are we going?

So do these changes in our social and economic environment really spell disaster for

all big box stores? Barbara E. Kahn, Professor of Marketing at the University of

Pennsylvania does not think so. She believes that “customers will always like to be

able to touch and feel the product[;] they enjoy the social interaction of physical

retailing, [with] some prefer[ing] to be able to take home the product ‘right now’” .16

As long as the American consumer holds their present values (trying on new clothes

etc.) Big Box will always have a place in America’s heart. Yes, there will likely be

closings of more brands that cannot keep up with modern demands, but on the bright

side, the stores that fill their place will likely be more suited towards the consumers.

No longer will we see generic stores like Sears as generic shopping will move online.

With large behemoths like Amazon flexing multiple warehouses around the nation,
COMMERCIAL DARWINISM 10

retail stores reliant on warehouse shopping (i.e. Macy’s and Sears) will fail to compete

in total retail supplied. Instead our malls will be filled with specialized stores like

Footlocker that can provide a larger spectrum of just a single product rather than

trying to compete with ecommerce and provide a diversity of everything. So the next

time you see a store closing sign, do not panic and be hopeful knowing a better store

will take its place, as the future of big box changes around us.

Online Research Journal

COMMERCIAL DARWINISM 11

Footnotes

1. Schlossberg, Mallory. “Teens No Longer Want the One Thing Retailers Have

Been Banking on for Years.” Business Insider, Business Insider, 16 July 2016,

www.businessinsider.com/teens-dont-care-about-name-brands-2016-7.

2. Dart, Michael, and Robin Lewis. Retail's Seismic Shift: How to Shift Faster,

Respond Better, and Win Customer Loyalty. St. Martin's Press, 2017.

3. Peterson, Hayley. “15 Companies That Are Defying the Retail Meltdown by

Opening Hundreds of New Stores.” Business Insider, Business Insider, 14 Jan.

2018, www.businessinsider.com/retailers-opening-new-stores-this-year-2018-

1.

4. Kelly, Leanna. “How Many People Shop Online? [Infographic].” CPC Strategy,

CPC Strategy, 22 June 2018,

www.cpcstrategy.com/blog/2017/05/ecommerce-statistics-infographic/.

5. “The Truth about Online Consumers.” KPMG, KPMG International

Cooperative, 2018, home.kpmg.com/xx/en/home/insights/2017/01/the-truth-

about-online-consumers.html.

6. Heller, Laura. “The Secret to Foot Locker's Success, According to CEO Ken

Hicks.” FierceRetail, Questex LLC, 4 Aug. 2014,

www.fierceretail.com/operations/secret-to-foot-locker-s-success-according-

to-ceo-ken-hicks.

7. Deagon, Brian. “Amazon Vs. Walmart: Locking Horns In A Battle For Retail's

Future | Stock News & Stock Market Analysis - IBD.” Investor's Business Daily,

Investor's Business Daily, Inc., 11 Sept. 2018,

COMMERCIAL DARWINISM 12

www.investors.com/news/technology/walmart-vs-amazon-retail-stores-e-

commerce/.

8. MarketWatch, MarketWatch, 2018,

www.marketwatch.com/investing/stock/wmt/financials/balance-sheet.

9. Bain, Marc. “US Retailers Are on Pace to Close More Stores in 2017 than in the

2008 Great Recession.” Quartz, Quartz, Inc., 25 Apr. 2017, qz.com/967055/us-

retailers-are-on-pace-to-close-more-stores-in-2017-than-in-the-2008-great-

recession-m-bebe/.

10. Baird, Nikki. “Retail Apocalypse Explained: Retailers Have Not Actually

Embraced Digital Transformation.” Forbes, Forbes Magazine, 12 Mar. 2018,

www.forbes.com/sites/nikkibaird/2018/03/12/retail-apocalypse-explained-

retailers-have-not-actually-embraced-digital-transformation/#19ea841d2806.

11. Fetcher, Josh. “Online Shopping Didn't Kill Toys R Us. These 4 Marketing

Mistakes Did.” ART + Marketing, ART + Marketing, 18 Oct. 2018,

artplusmarketing.com/online-shopping-didnt-kill-toys-r-us-these-4-marketing-

mistakes-did-de18de8f5db2.

12. “No. 1 Most Common Job: Retail Salesperson.” Forbes, Forbes Magazine,

2018, www.forbes.com/pictures/fjle45kmdj/no-1-most-common-job-retail-

salesperson/#53bfed193db7.

13. “Minimum Wage Tracker.” Minimum Wage Tracker, Economic Policy Institute,

13 Nov. 2018, www.epi.org/minimum-wage-tracker/.

14. Perry, Mark J. “Yes, the US Middle Class Is Shrinking, but It’s Because

Americans Are Moving up. And No, Americans Are Not Struggling to Afford a

Home.” AEIdeas, American Enterprise Institute, 2018,

COMMERCIAL DARWINISM 13

www.aei.org/publication/yes-the-us-middle-class-is-shrinking-but-its-

because-americans-are-moving-up-and-no-americans-are-not-struggling-to-

afford-a-home/.

15. Schwartz, Nelson D. “The Middle Class Is Steadily Eroding. Just Ask the

Business World.” The New York Times, The New York Times Company, 3 Feb.

2014, www.nytimes.com/2014/02/03/business/the-middle-class-is-steadily-

eroding-just-ask-the-business-world.html.

16. Kahn, Barbara E. The Shopping Revolution: How Successful Retailers Win

Customers in an Era of Endless Disruption. Wharton Digital Press, 2018.

17. “Minimum Wage since 1938.” CNNMoney, Cable News Network, 2015,

money.cnn.com/interactive/economy/minimum-wage-since-1938/.

18. “Retail's Toughest Year: A Record for Store Closings.” CNNMoney, Cable News

Network, money.cnn.com/2017/12/26/news/companies/retail-toughest-year-

store-closings/index.html.

19. Marcarelli, Rebekah. “Walmart to Focus New Store Openings on Florida, Texas.” Winsight

Grocery Business, Winsight Grocery Business, 12 Apr. 2018,

www.winsightgrocerybusiness.com/retailers/walmart-focus-new-store-openings-florida-texas.

20. Fromm, Jeff. “How Much Financial Influence Does Gen Z Have?” Forbes,

Forbes Magazine, 10 Jan. 2018,

www.forbes.com/sites/jefffromm/2018/01/10/what-you-need-to-know-

about-the-financial-impact-of-gen-z-influence/#760188d56fc5.