Despite record highs in the markets, bad news about consumers has been relentless: malls are closing; consumers have accumulated too much debt; incomes are stagnant. None of this bodes well for future consumer spending and economic growth.
This is the established narrative – fairly straightforward, based on well-understood data.
I suspect it is also wrong.
What if something else entirely is occurring? What if many factors are creating an enormous economic shift that we cannot see because we are right in the middle of it? Consider the following: We have been slow to adapt to an ever-increasing set of economic, cultural and technological changes; excepting the young, most of us are not very good at the required adjustments. We increasingly resemble the slowly boiled frog.
We can hardly fathom the long-term ramifications of enormous sociological progressions that have been taking place before our eyes.
Retailers have been having difficulty understanding these changes, much less responding to them. Perhaps the old economic rules of thumb are no longer as useful as they once were. Consider the following five elements as prime drivers of the new “retail misery index”:
• Income: For most of the country, incomes have been flat for the past few decades. The top 10 percent has seen gains, as have the 1 percent – but the biggest gains have come in the top 0.1 percent. This is reflected in markets such as art, mansions and estates, and collectible automobiles. The top 0.1 percent are not big on malls.
Flat incomes have made the average shopper a much savvier consumer.
• Inflation, deflation, new categories: Price changes are a mixed bag. On the one hand, we have seen relentless inflation in housing, education and medical costs – each driven by different factors. The flip side is the ongoing price decreases in so many consumer products, from clothes to electronics, and most especially technology.
However, new product and service categories simply were not in a family’s household budget 10 or 20 years ago: smartphones, Netflix, tablets, data services, Amazon Prime, web hosting, satellite radio, music subscriptions, etc.
New costs and flat income put household budgets under significant pressure.
• Time: It is easy to underestimate the amount of time pressure people face today. It comes from email, instant messages, Slack, etc. – all of which follow us everywhere via our mobile phones. … Time-constrained households are finding alternatives to circling the mall parking lot looking for a spot.
• Psychology: While the financial crisis certainly left consumers with post-traumatic spending disorder, I want to focus on something else: stuff. We Americans used to love stuff of all sorts, but today, we seem to have moved past it. We still love too-big homes and too-fast cars, but no longer feel as compelled to fill them with the sorts of junk we used to. … People are trying to move away from materialism and toward “experiencism.”
• Technology: It’s too easy to blame Amazon for all of retail’s problems. But there can be no doubt that technology has made the retailers’ job much harder. Consumers today are better informed about prices via price comparison engines than ever before. Showrooming is rampant – in which shoppers visit a physical store to browse, but then buy online. Woe to the mainstream retailer without competitive pricing.
Modern manufacturing makes better products that last longer and are more trouble free than ever before.
These factors all contribute to a downsizing of retail America. But the transformation is much more than total square footage and dollar sale volumes. We are undergoing a fundamental change in how society consumes products. It is happening both too slowly for us to fully grasp, and yet too fast for retailers to adapt.
Barry Ritholtz is a Bloomberg View columnist.
