Today, Explained - All the mall things

Episode Date: November 20, 2020

Retail was struggling. Then came the virus. Recode’s Jason Del Rey explains how the American mall will never be the same, and how the machines might save retail. Transcript at vox.com/todayexplained. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Visit connectsontario.ca. Hello? Hello? Hi, baby. Hey, Mom. How you doing? Good. I just got home. I'm in the church. Drive-thru mass. And I got home. I'm in the church. Drive-thru mass. And I got home.

Nice. Mom, I had a question for you. When was the last time you went to the mall? Christmas? Even for Christmas, I didn't go. Why don't you go to the mall anymore? Maybe it's closed. I know the stores that are open to the car park, they are open. Someone told me that. JCPenney, I think.

Wait, isn't JCPenney like over? It's supposed to be bankrupt or whatever, but it's open. They're having a huge sale or something. Like we're going out of business sale? Yeah, 7% off or whatever. Like we're going out of business sale? When I worked at the mall, when I worked at Sears, you were at the mall like you were my most frequent visitor over there. Oh, that's right. but I used to go often, yes. At Macy's and all, I know the people who work there. Some of these people have been working for years and years. And they recognize me, and then they say,

hi, nice to see you again. Now, I don't know even whether they work there anymore. How did knowing them change your experience? Oh, they give you all the discounts. Oh, they say, oh, there's a $5 off coupon. Do you have the coupon? No. Then they'll get a coupon from the draw and say, okay, we'll give it to you and they'll give it to you. It's only if you know them. So despite the human connection that you're certainly losing, do you think everything you need you'll be able to find online for the same prices you did at JCPenney or Macy's? My garden hose pipe burst because it was so hot here. And I went to all the stores.

It was so expensive. I was able to get online cheaper. So it sounds like you're transitioning smoothly to shopping online instead of going to the mall. We're going to talk about what's happening to all these retail stores in the meantime on the show today because a bunch of them are folding right now. I'm wondering, have you said goodbye to going to the mall, to going to the big box stores? Is that a thing of the past for you? No, no, no, no. It's not.

I don't, I don't, I like talking to people. Well, thanks for talking to me. Okay, take care. Okay, talk to the coronavirus. Deal hunters have been flocking to Century 21 stores after the chain announced that it is going out of business. As clothing sales collapse and people stay inside during lockdown restrictions, Lord & Taylor joins the other retail casualties, including J.Crew and Neiman Marcus. Every one of these department stores is frankly a disaster area. They've been struggling for ages, though. But like so many other long-term trends, the pandemic threw fuel on the fire.

Jason Del Rey, you've been writing about retail for Recode. We're a week away from Black Friday, historically the biggest day of shopping in the United States. How are the traditional stores looking? You now have a long list of department stores that have either filed for bankruptcy or are really on the precipice. And I think we haven't really seen the full brunt of what this will mean sort of in a negative light for the U.S. economy on a whole. What exactly happened? E-commerce definitely happened, right?

You also had coupled with that, the internet in general made it a lot easier to discover brands that you otherwise couldn't have before. So department stores were the place you went treasure hunting or discovery shopping. When you can go to that brand's website instead, when you can find it on Instagram, on Facebook, you don't need to go into these massive stores. And then some of them also were run by private equity that saddled them with debt.

Sears, which also owns Kmart, faces a $134 million debt payment. Sales at Sears have tanked nearly 60% over the last seven years. And if your sales don't recover from the challenge state they were in when private equity bought them, that debt is going to come due at some point, and you don't have the money to pay it. Sears is the latest retail giant to announce that the company has filed for Chapter 11 bankruptcy. And then the pandemic hits and everything becomes that much more challenging? Yeah, I mean, basically, you're forced in many cities, many states to close your stores. And if you're already struggling to stay afloat, you're really screwed. How many jobs are we losing as a result of this sort of decimation

of American retail? It's easy to see hundreds of thousands in the near term. Long term, you're looking definitely in the millions. And what you have in department stores, salespeople on the floor or merchandisers who've been in these roles for, I don't know, 10, 20, 30 years. And it's not like they're going to leave and go find another department store sales job. It's really sad. And so you look at who's hiring in this country. And in a weird, ironic twist, it's Amazon just announcing recently 100,000 new employees they're hiring. It's e-commerce in general, which means not a sales job where you're interacting with people. And it's not a sales job where you're making 6% to 10% commission for every

fridge or washing machine you sell. That's a great point. I was actually talking to someone recently, and they were telling me still at a high-end chain like Neiman Marcus, you have salespeople work there a couple of decades, and they have their best go-to customers, and they're making a lot of money in commission. That's not the norm, but those jobs are going away. What about all these storefronts? I mean, I live pretty close to a strip mall in D.C. and there's this Models sporting goods store there before the pandemic that's just empty and deserted now. No signs about, you know, what's coming to replace it as far as I can tell. The ugly truth is there's just going to be a lot of empty store space

for a considerable period of time. Even before the pandemic, people in the retail industry knew full well that the US was, what they would say in the retail industry, overstored. Just way too many stores. As suburbs exploded, you get mall after mall. And then dynamics change, society change, people go back into cities, but those stores are still there. In the near term, you're going to have rents being cut and you're going to have empty storefronts. Longer term, you will get some young and upcoming brands who realize it's good to have some physical store footprint if they sell stuff that people still want to see and touch before they buy them. But you are also going to see things like e-commerce companies

using some stores as delivery hubs. And when I think of the Neiman Marcuses and JCPennies and Searses and Macy's of the world, I think about the sort of of pillars and sort of, you know, bookends of every major mall in the country, if not the continent, like what happens to malls without these department stores? I wish I had better news, but it's really a rough situation. You know, you were seeing before the pandemic malls starting to bring in what they would call like experiential retail to take over where department stores failed. So that means restaurants or I live right by this mega mall entertainment complex with an amusement park inside. Is this a mall or a theme park? Turns out, both. They were opening just this past year,

so they are in terrible shape. The American Dream Mall in East Rutherford, New Jersey, just outside New York City, is now open. And get this, they have an indoor ski and snowboard park. This was supposed to be the future of malls, was you go there for entertainment, for drinks, for food. And then, yeah, you stop by Macy's and pick up socks for the kids. I think some of these malls are hoping that a vaccine comes and a year from now, people want to be in crowded spaces, eating and drinking. Maybe there are some of those people now. I'm not one of them. And I think they're going to really lean on some of these popular e-commerce brands and try to sell them on why they should have a flagship store in the big mall in Garden State Plaza in New Jersey near me. So all of the tweens and teens of America are going to have to go to hottopic.com

instead of just going to the one in the mall and seeing all their friends there? Listen, I think malls, premium malls on the high end that cater, frankly, to people with a lot of disposable income, I think some of those will still survive. And then, yeah, my 16-year-old niece is going to be buying Hot Topic through Instagram checkout. It's really hard to tell right now whether the cultural aspect of malls that some of them still had when it comes to young people congregating, how quickly that comes back, or if it does. Jason, it's almost becoming like a popular refrain on this show that the pandemic has accelerated trends we were already seeing.

But by and large, was the American shopper ready to stop going to stores to shop? I think segments of the population was. What will prove that is if, you know, six months from now, these crazy e-commerce numbers are still there, right? If my friend's 68-year-old mom who never heard of Instacart before the pandemic is now a loyal once-a-week Instacart shopper. Like, yeah, that's one anecdote. But those anecdotes stitched together is what we're seeing in the e-commerce data right now. So I think a lot of people just didn't know they were ready. But I do want to make a point, like there is room for cool physical retail, but the difference is like you really need people to have a reason to come in your door,

like a product they can't find, some type of cool experience. Like if I'm going to get my butt out of my seat from behind my computer into a car and go to a store, I've got to deliver for it. The future of retail, after the break. Support for Today Explained comes from Aura. Aura believes that sharing pictures is a great way to keep up with family. And Aura says it's never been easier thanks to their digital picture frames.

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to you please contact connex ontario at 1-866-531-2600 to speak to an advisor free of charge betmgm operates pursuant to an operating agreement with iGaming Ontario Jason whenever there's a bunch of losers, there's a bunch of winners. Who's winning right now? The big, bad retailers who are also good at e-commerce like Walmart and Target, who are allowed to have their physical stores open during the pandemic because they were, can't see my air quotes, but essential. They sold stuff you need to exist like food.

Old Navy is a company that their sales this year are maybe just down a few percentage points from last year. And that's for a couple of reasons. People are not going to work. What are they wearing? They're wearing sweats. And I don't know what you're wearing. I'm wearing a three-piece suit, Jason. I don't know about you. Okay. Sorry. Sorry. All good. They and their parent company, Gap, they also got into mask making very quickly. And Old Navy has also done okay because their website is a pretty good functioning e-commerce site. They would not say this has been good for their business, but they have been able to tread water and we'll see the other side. And then, of course, you have Amazon. We're going to start with an earnings alert.

It's Amazon, the stock touching new all-time highs. This has reporting a blowout quarter, earnings and revenues both topping expectations. Amazon grew something like 40-something percent from last year. At their size, that is a crazy, crazy number. For every penny of wealth in the middle of the country, that's like Jeff Bezos, the richest man in America, finding $11,700. Walmart, their online sales were up 100%. Target, I think think close to 200%.

You also have some other companies, like I mentioned Instacart, which is still a relatively young company. I think it's been around less than 10 years. But suddenly, no one wanted to go into a grocery store. And so overnight, they became one of the leaders of grocery delivery. We'll probably see them as a public company, I'd say, in the next two years. Then you have a company like Shopify, which is not a consumer-facing brand, but they are a software player that is a huge public company now. And they make it possible for just any small business from your local bakery to a local sneaker store to sell online and get it up and running super quickly.

So it sounds like the brands that were able to really weather this storm better than most were the ones that had online infrastructure already set up. Were there any major pandemic innovations that we might see more of as more of our shopping is trending online? Yeah, so one that comes to mind right away, it's not super sexy, but it's called curbside pickup. When it comes to sexy and technology, drones is something that's been talked about for a while. Of course, the rise of the machines. And these are delivery drones. If you're ever bored, you should search drone into Amazon's patent library. I don't know if you'll ever get that bored, Sean, but...

Maybe this winter. Amazon has a ton of patents for drones. Drone warehouses, floating warehouses, drones that attach to each other. Anyway, the point is, there will be a day where some people in some parts of the country will get stuff delivered by drone. I think just recently, Amazon finally got an approval to do some of this testing.

Walmart announced their own drone partnership. It's a weird battle of the drones between two big retailers. But that is something that we're going to see. In China, there's already deliveries happening in drones. Australia, Google's doing some stuff there. And so you will be able to get light things delivered to you by drone.

Call it in the next decade, maybe even faster. Okay, so we got drones. What other robot stuff is ahead? In a place like Walmart, you have robots that are going to and have already started packing grocery bags, which there's a business case for it, but maybe there's also a convenience case. And you're going to have autonomous delivery vehicles at some point. It's kind of the sad state of consumerism in the US in some ways that we're all about speed, convenience, and how fast you can get me what I want when I need it at the tap of a button. But

that's the way a lot of the industry is going. And so you're seeing a lot of the technology geared toward that. So autonomous delivery vehicles, they're coming too. Apart from the robots, we have AR, otherwise known as augmented reality. Like the stuff on Snapchat or Instagram, like funny filters for your face. Except more like, does this couch actually fit in my apartment next to my bed? Because I live in 350 square feet in Bushwick. When it comes to trying to get people to buy stuff online that costs a lot of money and also needs to look good in their homes and is hard to ship,

so you may not get free returns on it, that's sort of like AR's sweet spot. But I think there'll be all sorts of other use cases. For a while, it was like VR, like you're going to put on goggles, and then you're going to like, I don't know, swipe your finger in the air and figure out which shirt looks better on you. I'm a little more skeptical about that. But if it's one of the R's, it's going to be AR, not VR. No disrespect for our, you know, proximate robot overlords, but do you think like for all the people like my mom who like going to a store, like going to a mall, trying something on,

talking to someone, buying a thing, you know, cracking a smile from a human interaction? Is there hope for those people? I think so. I think you're going to have, you know, less selection where you go and have those experiences. I guess the hopeful side of it from a consumer perspective is that the retailers who remain will be the ones that actually are offering the best products, the best service at the best price. And so you're less likely to walk in and have sort of disappointing or bad experience. You know, I admit this is putting aside the whole labor issue. This is talking from the customer perspective. I think there will be store

experiences that exist. There will be fewer of them. Hopefully they will be better experience, but typically more choice is better for consumers and for competition. And so I do worry that with less choice in the physical world, it just gives rise to stronger, more concentrated power. Jason Del Rey. He's a reporter at Recode and the host of the first season of the Land of the Giants podcast. It's all about the rise of Amazon. I'm Sean Ramos for him. This is Today Explained.