Thanks to Fung Global Retail and Technology, we can show two revealing charts that raise more questions than answers. First of all, while the announced number of store closings total roughly 500 more than store openings, Fung doesn’t account for the square footage difference. Second, we don’t know what the independent and small chain store comparison is. And third, it would seem impossible to account for the hundreds of e-commerce websites opening every week compared to those closing.

Nonetheless, these insightful charts are directional, and I say, good work by the Fung group for this provocative data. The first glaring issue it raises is that the majority of openings are in the discount sector, which, like a slap in the face, simply reminds us that consumers continue to drive more insane price promoting, discounting and deflating value that has been accelerating for the past decade. On a macro level, with a few exceptions, price has become the sole basis for competition. And as much as our industry leaders proclaim that this is unsustainable, it’s apparent that they continue to default to this path of least resistance for growth.

And by the way, as I have often pointed out, don’t fall for the easy and flippant commentary that all of the brick-and-mortar revenues are simply shifting to e-commerce. Yes, the double-digit growth of e-commerce is stealing share and contributing to store closings, but the majority of business is still done in stores.
Therefore, as long as the majority of revenues are generated in-store, and as long as these retailers continue to compete on price, the strategy will continue to be devaluation, ultimately seeking a sustainable “bottom.” For now, it seems the sustainable bottom is where the discount, outlet, off-price, and “value” models reside. This explains the roughly 2500 store openings. And again, “discount-mania” is rampant and unmeasurable online, exacerbated by the fact that most of these e-tailers do not have to make any money.

Rationalization is a Nice Theory, but Irrelevant in this Reality

The last darker insight to ponder is that those who point to store closings as “rationalization” or some natural evolutionary process by which supply and demand will somehow find a healthy equilibrium supportive of organic growth, are smoking something.

As long as the “captains of capitalism” (Wall Street and the C-suites of corporate America) believe infinite growth is a God-given right, while they may cut costs and give up growth in one area, they will flail around, seeking it in another. And they will operate that way, pushing more and more supply, more and more stores, stuff and websites out into an already over-saturated world until the business collapses. Look at Sears, which has been slowly collapsing since the early 1980s. It flailed around for new growth, thus continuing to pile onto the pile of already unwanted, un-needed stuff. Thank somebody, God or otherwise, that the end really is near.

Nevertheless, Sears et al. are not part of a big rationalization process that will naturally and wonderfully return us to vibrant supply-demand equilibrium.

The End

If you follow my logic, the “end” of this path is not pretty. As long as price deflation is the basis of competition in a world producing more than people can, or want to consume, the end of this arc (not the pretty rainbow arc) is a real Japan-like deflationary cycle, and potentially a recession — or worse, depression.

The only way out of this downward vortex is for Wall Street and corporate America to agree on a new basis for competition with new performance measures. Replace revenue growth with profitability growth as the measure of a successful business — quality vs. quantity. Some suggest ROIC (return on invested capital) as the measure of a “smart” and sustainable business.
Currently, I’m finding it very difficult to imagine a colorful rainbow replacing the dark arc of endlessly deflating value.

Please prove me wrong.