5 Reasons the Retail Industry is Declining

It’s no surprise that 2017 isn’t a great year for the retail industry. According to Business Insider, several well-known retailer

It’s no surprise that 2017 isn’t a great year for the retail industry. According to Business Insider, several well-known retailers, including Payless Shoe Source, The Limited and RadioShack, have gone bankrupt since the beginning of the year – as of April. Corali Lopez-Castro, a bankruptcy lawyer said that this downward spiral isn’t likely to stop anytime soon.

“2017 will be the year of retail bankruptcies,” she told Business Insider. “Retailers are running out of cash, and the dominoes are starting to fall.”

Shopping trends are shifting, and retailers simply don’t know how to cope with this distinct change and simultaneously satisfy their customers. Let’s take a closer look at why so many retailers likely won’t make it out of 2017 alive – or barely breathing at best.

1. Online shopping

We’re living in a world that’s controlled by smartphones, tablets and basically any other smart device that consumers can get their hands on. So who’s surprised that online shopping has become a popular way to buy and receive goods? Why would consumers go out of their way to sit in traffic and wait in line at a department store when they can buy and ship products to their front doors from the comfort of the couch? According to a survey conducted by Pew Research Center, 8 in 10 Americans admit that they are online shoppers, and this trend isn’t expected to decline anytime soon.

2. The desire for experiences over goods

The convenience of online shopping isn’t the only thing that’s hurting retailers. According to CNBC, more consumers are interested in making purchases related to travel and experiences instead of physical goods like clothing. This is something that retailers have trouble competing with.

3. No niche

If more retailers took the time to create a better experience for shoppers, they may be able to attract more consumers and keep their brick-and-mortar shops up and running. Sports retailers, specifically, felt the push over the years, and many have filed for bankruptcy because they couldn’t find a unique way to present their products. Without specialization, it can be hard for similar retailers to survive, according to Rory Masterson, an industry analyst at IBISWorld, who recalled the downfall of sports retailers.

“The big problem was that they weren’t focused on anything enough to carve a niche in the market,” he told the LA Times.

4. Bankruptcy law changes

In 2005, changes to bankruptcy law were put in place to give retailers no more than 210 days to inform their landlords if they were going to renew their leases. Before this change, retailers had 18 months to do so. Since this shift, stores have been forced to make quicker decisions, giving them less room to breathe. Holly Etlin, AlixPartners managing director, said that this changed law can make it difficult for retailers to restructure efficiently and successfully.

“I took [grocery chain] Winn-Dixie through the restructuring process in [February] 2005, It took 16 months, but it was an ultimate success,” she told CNBC. “The bankruptcy law changes went into effect at the end of our restructuring. It likely couldn’t be done under the law today.”

5. Debt

With new shopping trends on the rise and customers paying for experiences over products, retailers are going into debt. Without top-notch financial health, there’s no telling when retailers will sink – but it’s likely to happen and fast. Matt Powell, an industry analyst at market research firm NPD Group, stated that retailers who are in debt obviously aren’t spending money on the tools they need to keep the business afloat.

“If a retailer’s got a lot of debt, it means they’re not spending money on stores, they’re not spending money on systems, they’re not spending money on the kinds of things they need to do to drive the business forward,” he said.

Retailers who wish to survive during this dark time need to learn how to compete with the internet. Having a niche and addressing a new strategy that can bring customers into stores – without holding ridiculous sales that push them even deeper into a hole – can leverage retail stores to stay in business and avoid filing for bankruptcy.