The retail is dead, long live the retail!

The retail sector is experiencing its particular technological disruption, and will be transformed forever. Here is how it will change the way you shop.

We are about to reach the equator of the year, and there is a figure that has caught the attention of business analysts: to date, more retail companies have been declared bankrupt than in the whole of last year. Iconic brands like Michael Kors, RadioShack, Bebe, Abercrombie & Fitch, Guess, Crocs, Macy’s, JC Penney, among dozens more plan to close more than four thousand outlets in the United States alone.

With this background, it pays to answer the following questions: Why is retail important for the economy? What phenomena are occurring in the sector? And where are we going with these changes?

Understanding retail, or how products reach consumers

Retail is the economic sector encompassing retail; That is to say, that includes businesses such as supermarkets, brand stores, stores, shopping centers, department stores, among other points of sale. It is intended to bring you products of mass consumption – obtained directly from the manufacturers or through intermediaries – to the end user.

Retail is important for the economy because it is one of the largest generators of employment -top 3 or about 10% of the market for most countries. It is common to look at whether retail sales are growing and at what speed, to find what may be behind it and to identify what they can tell us about the economic families’ situation. Its financial spill is in the formal and informal sectors. And it is the economic area that gives the first job to many young people entering the labor market.

Retail investors and post-crisis debts

Most of the international retail brands are based in the United States, and their performance is highly correlated with the country’s economy. They now have a complicated debt management problem. First, a significant number of producers survived the 2008 Economic Crisis because it borrowed at very low interest rates. Second, the sector is continuously leveraging debt, which increased aggressively after the crisis.

In addition, several investors who participated in retail brands with healthy finances, made companies in the sector to get into debt, so they made billions of dollars that they cannot pay now. Part of that money was to pay dividends to such investors.

In summary, interest on debt accumulated has been higher than the increase in sales in recent years, so that each day are weaker. Now, over-indebted retail companies are very difficult to restructure, so the alternatives are few: liquidation, reorganization or sale, the former being the most common option because it has the best cost-opportunity and requires the least effort.

The retail of the future and its implications

In a few years, retail will be very different and perhaps it is not so far-fetched to begin to imagine it: brains that anticipate people’s purchases, replacement of commercial premises by stand-alone vehicles where the store is inside the vehicle, deliveries by drones, robots that complement store employees and warehouse. The technological advance in this will bring convulsions to the sector and will require new regulations.