Shrinking Sales Space

The United States has 46.6 square feet of retail shopping space per capital, the most in the world. Even tho it has become cheaper to rent store space in some parts of the country, the retail property market is still struggling in many ways. A new report on commercial real estate shows just how bad it’s gotten. In 2016 vacancy rates in shopping centers in the U.S. grew in 33 out of 77 metro areas. In the year before that only 24 grew. And then in 2014 the number fell again to just 19. Along with the increase in vacancies comes a decrease in rent. According to the Wall Street Journal, in the fourth quarter 2016, “rents, which usually increase roughly at the rate of inflation in healthy markets, decreased in two metro areas for the full year.”

It’s not too hard to understand the cause behind this decline across the industry. For the past several years online shopping has become the preferred method among many consumer. Even the big department stores have to struggle against online businesses. Sears will close 42 locations this year along with 108 K-Mart stores, which its parent company also owns. And Macy’s is planning to shut down 68 stores, which means about 10,000 employees will be let go. This is not a good sign for the company’s financials. Macy’s expects it will lose $600 million in sales this year due to this change. There are also plenty of small retailers have had to call it quits too.

We will likely see a lot more closings and job cuts as time goes on. If we take a look at the retail numbers from last year, sales grew by only 2% compared to 16% for e-commerce. Ultimately the trend to online shopping is not that big of a problem for the actual retailers. In fact, it’s usually  cheaper to run a website than to own real estate across the country. But it will be a problem for the employees in this industry, with tens of thousands of them out of work already. In 2016 we saw almost 50,000 retail employees laid off because of Sears and K-Mart. It’s not looking good for them in 2017 either.

As more people shop for goods online it’s important to consider all the technology companies working behind the scenes to operate the infrastructure to make it all happen. Ten years ago this week Apple launched the iPhone and revolutionized the way most people use the telephone. There have been smart phones previously but it wasn’t widely adopted until the iPhone became a popular hit. Not only did that invention change Apple’s core business and financial focus but it also sped up the adoption of people using their phones to do everything from shopping online, to doing their banking on the go.

It appears the slowdown in shopping last year isn’t just isolated to retail though. It seems to be a broader story. Even technology companies are seeing slower growth. Apple is still one of the most profitable companies in the world but it has recently experienced a decline in sales and revenue. According to the company, its annual sales of $215.6 billion dropped 3.7% below its target of $223.6 billion. Its operating income came out to $60 billion, which fell just short of its targeted $60.3 billion. This may not be a big difference, but its enough to cut the company executives’ paychecks by 10.5% of their targeted annual cash incentives. Apple’s CEO Tim Cook made $8.7 million in 2016, which is lower than the $10.3 million he made in 2015. But before you start feeling bad for him, keep in mind that he also received $137 million in 2016 for leading the company for 5 years. As consumers change their spending habits, companies and investors will have to adapt.

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