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Retailers Worry About More Than This Season

12:00 AM, Dec 21, 2013 • By IRWIN M. STELZER
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Years ago, when Americans began visiting Europe in significant numbers, they invariably returned with trophies ranging from cashmere sweaters (Britain), silk scarves (France), several inches on their waistlines (Italy), and assorted knick knacks. And with stories of the sullen London shop staffs who found customers an annoying interference in their day, and snobbishly condescending clerks in Paris. The offset was the ability in many countries to haggle over prices. Never mind that the result might have been a triumph for the local shopkeeper, who anticipated the haggler by setting high prices; Americans were accustomed to department stores in which tags set out prices that were not subject to negotiation.

That was then, this is now. This may be the season to be jolly, but not for retailers facing aggressive, cash-strapped, knowledgeable, and technology-laden consumers. This is not about the widely advertised discounts that retailers trumpet in their ads: those are yesterday’s discounts, on goods produced to specifications of retailers who know they will eventually be sold far below list price. The posted discount price is in line with the value of the merchandise. Today’s discounts in America are more life-threatening to retailers -- imposed by consumers who view the discount price on a sales label as the retailers’ opening bid. Americans are now finding that the haggling once practiced abroad but not at home pays off. Armed with sophisticated devices that allow them to compare in-store and Internet prices, and facing sales staffs trained to meet any competition rather than allow the customer to leave empty-handed, buyers of computer gear, flat-screen televisions sets, fridges, and other electronic gear and appliances have the upper hand. DealScience, a website that ranks online deals, says at least 20 percent of so-called “big-box retailers” such as Best Buy have price-matching policies. This might be one reason why the overall inflation rate is running at the negligible annual rate of 0.7 percent (that average conceals wide variations in price performance of various products), and why retailing is facing the sort of capacity shake-out that hit firms in the manufacturing sector years ago.

The International Council of Shopping Centers reports that malls here in America have about five times as many square feet of shopping space per capita as exist in Britain and ten times as much as in Germany. Some observers say that situation indicates that America is over-stored, that retailers should be following the lead of Abercrombie & Fitch and closing unprofitable or marginally profitable stores. But either because they think their woes are due solely to the slow economic recovery, or are locked in by long leases, or prefer more stores to more profits, or with typical American optimism believe that with spiffier stores and more appropriate merchandise they will win the day, U.S. retailers are actually adding a bit of sales capacity.      

This might be because businessmen rarely recognize what the great economist Joseph Schumpeter called the “gale of creative destruction” that is the essence of entrepreneurial capitalism. When the old order changeth, yielding place to the new, the old order is often blind to what is going on. As were bricks-and-mortar retailers only a few years ago.

The tale of those traditional retailers failing until recently to respond to the invasion of their markets by Internet-based, self-styled “disrupters” is oft-told. Book stores from the once-mighty Borders chain to the local shop are, with notable exceptions of high-service shops (book stores with literate sales people), are long gone, or going. Appliance retailers have succumbed to the Amazon onslaught, led by Jeff Bezos’s decision to offer free shipping of his usually (but not always) competitively priced stuff.

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