Frank Thoughts: General Retailers
Frank Boland
August 04, 2023

Ours is a unique consumer driven economy. Estimates put it at 60-63% of our GDP. If we were to think of the economy as one large operating business, it would have a 330 million customer base. Such a focus would make it not only the largest business in the world (which it is) but one whose customer base had the highest standard of living.  Its success would originate from targeting the large size of the customer base. In a civilized society, everyone has a need for food, clothing and communication. It’s not surprising these three needs resulted in producing the largest retailers in the past and present day.

During the age of industrialization in the 19th century, The Great Atlantic & Pacific Tea Co. pioneered the beginning of the “box” store concept in selling food. It was a concept that would last 164 years! At its peak, it was the largest retailer in the country with over 15,000 stores. This broad concept of mega food retailing continues today with Walmart and Amazon. Not only are they the largest in food retailing but the largest purveyors of general merchandise retailers as well. That’s a concept that may have reached pricing maturity. Consider that Kmart and Sears Roebuck failed before them.

Walmart and Amazon’s current size “speaks” to the basic universal needs of a 330 million customer base. Aligned with food is the ongoing requisite need for clothing. This need in retailing was perceived by entrepreneur Rowland Hussey Macy 145 years ago. His vision took four previous retail failures before the N.Y. department store, RH Macy, was opened in New York in 1858. Its longevity today is only surpassed by a specialty retailing store concept (specialty may become the future) Brooks Brothers in 1818. RH Macy, for the moment, is still the 20th largest retailer in the country.

The third universal need is communication. Apple is the quintessential example. Its stock has been like owning A&P or RH Macy from the beginning. Yet, its iPhone is only 16 years old. At some point, it too will have competition. While many think of Apple as a technology stock, we would argue that it really is a Direct-to-Consumer product company that uses technology.  Nike is another brand that has pushed into the new DTC channel of retailing. Currently 30% of its sales go through their DTC channel. The iconic 170-year-old Levi Strauss does 46% DTC. All three also own hundreds of their own stores.

We believe the short duration of technology life cycles is starting to impact what has always been the long-life cycle of general merchandise retailing. Recall Kmart and Sears Roebuck.  In time, this will affect our consumer driven economy. Retailing has always been about price. With new distribution channels, the low margins in food retailing could spread to general merchandise. This would lead to three retail investment opportunities. Direct- to-consumer “retailers,” specialty stores with specific niches, and “resellers” of excess merchandise. It would also benefit specific restaurant concepts which are, in effect, specialty retailers in the food business.

Our piece is about “retailing” as a changed concept from the past given the development of the internet in 1995. General merchandising has become about the distribution of products. New physical stores are now used simply as an adjunct. Since 1995, a whole new generation of adults has grown accustomed to the ease of home delivery and the much lower price structure. The store and profit structure of the past will only work with specialty brands that have a proprietary mystique of long-term value to the consumer.  Much as Apple has already demonstrated in the communication sector.

-Francis Patrick Boland

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