As more Americans turn to online commerce every day for everything from paper towels to appliances, traditional retail outlets, including giants such as Macy’s, are feeling the pinch. We sat down with Giacomo Santangelo, Ph.D., lecturer of economics, to find out what this means for employment, street life, and what Walt Disney World’s Bibbidi Bobbidi Boutique can teach us about the future of retail.
Full transcript below
Patrick Verel: This is Patrick Verel and today I’m speaking with Giacomo Santangelo, lecturer of Economics here at Fordham.
According to the New York Times, it’s expected that sometime this year Amazon will surpass Macy’s to become the largest seller of apparel in America. It seems to be kind of a big deal and yet it doesn’t seem to be getting the same sort of attention that the shrinking manufacturing sector is getting.
Giacomo Santangelo: Well, I don’t know why people feel it’s harder to sell clothing than it is books. I think it’s just as easy to sell anything in retail in the 21st century as it is anything else. I think people’s resistance to the change and the technology of how we do things makes people surprised at some aspects but not others.
People will respond to, “Oh, my goodness. People are buying books online remotely. People are purchasing clothing or makeup online remotely.” But no one questions that the gas company no longer needs to come to your house to read your meter, they can do it remotely or wirelessly. People don’t really question the fact that they are doing online banking.
I think in any dynamic economy, you’re going to see changes from mom-and-pop stores to chain stores. From chain stores to whatever comes after chain stores, which apparently is internet shopping. In very much the same way in the 1960’s and 70’s with the rise of large appliance manufacturing warehouse type stores. Or in the 1990’s with the rise of big warehouse type home improvement stores like Home Depot and Lowe’s.
People said, “Yeah, but this doesn’t feel right. I want to go to the corner hardware store.” Then, people said, “My God, this place is like a warehouse.” Now people can’t live without Home Depot and Lowe’s. When you saw moves away from people actually going into video stores and purchasing video cassette tapes and DVDs. Or places like Sam Goody and Tower Records and purchasing physical CDs and albums to people just buying those things online.
The largest retailer of music on earth, Apple, where you’re just downloading the music, suddenly people just noticed that for a period of time. But now we don’t talk about that anymore, we’re just excited about the new Kendrick Lamar album.
You mentioned before that the media is giving more press to the shrinking manufacturing sector. Manufacturing in the United States of America, unlike what the President’s Advisors have been saying publicly, is not a large sector. It doesn’t contribute a lot to employment in the United States and it hasn’t for decades. Nor has it contributed a great deal to GDP in the Untied States.
Much like inter-dynamic economy, inter-dynamic labor market, we move away from lower paying jobs to higher paying jobs. Relatively higher paying jobs. That’s where we are in the 21st Century. A majority of the economy is driven by what is known as service based labor.
We’re not sending our children to college and secondary education to learn to work in factories as linesmen and women, nor on farms working in fields. We send them to schools to become doctors, and lawyers, and financial professionals, and teachers, and things of that nature.
I think that’s something that’s been getting a lot of press but in the wrong direction because it’s not a thing that we do any longer. We haven’t for a very long time.
Patrick Verel: Aside from the jobs that will be lost when these stores close, I should think that the Real Estate sector is also gonna take a hit because obviously the vacancy rate is going to rise. Stores like Macy’s are often anchors for malls.
I wonder is the retail sector basically heading for a future where our street scapes are going to be exclusively dedicated to sort of experiential things? Like bars, and restaurants, and then other things that are just harder to replace like pharmacies and banks.
Giacomo Santangelo: One of the things that we’re seeing is a move away from traditional, you go into a store and try on some clothes. Or try out a whatever … a diet. We’re moving away from that and it is becoming, you used the word, experiential.
So it’s more of an experience when you go shopping. When you go to, for example, when people go to purchase make-up. Something that a lot of the companies are doing now, I think the company is called Charlotte Tilbury. They have a magic mirror where you will sit in front of a mirror and it will take a photo of your face while you’re sitting in front of the mirror. Then, you can try out the make-up on your image.
Now this, of course, is not new. Other companies have been doing this for years. But it’s been an app on people’s phones. But here, if you want to use the Charlotte Tilbury app, you have to actually physically go into a store.
The company Uniqlo they also have one of these, but it’s for clothing, so it will actually take … You take a selfie, you stand in front of a mirror, it takes a selfie of you, then you can literally swipe and put different outfits on yourself.
The interesting fact is that this was developed by Walt Disney a couple of years ago because at all of their parks, they have a store called the Bippity Boppity Boutique. In which, young boys and girls, because they don’t have this for adults, can go in and stand in front of a mirror.
You can then swipe to have yourself in one of the Princess’ or one of the Prince’s costumes. Then, you pick the one that you want and you buy it. But it allows you that kind of experience.
So I think it’s experiences that people want. It’s why … what’s happening right now with retail should not be surprising to anyone.
Patrick Verel: In the end, people are still buying things.
Giacomo Santangelo Yes.
Patrick Verel: Right.
Giacomo Santangelo: And they will.
Patrick Verel: Now they’re just buying them from a central location that’s further away from them in a warehouse somewhere instead of a smaller one that was close by and run by local people.
So I wonder, from an Economist perspective, what’s the upside to this?
Giacomo Santangelo: Well, I think you have to look at the two entities involved. One, is the consumer. The other is the person who’s selling. The issue is that the consumer has always and will always respond to the incentive of cheap.
The example I used earlier when I said that we used to have mom-and-pop appliance stores and mom-and-pop hardware stores. Then, you had these big box stores, you had the large retail chains. People said this is wrong. I don’t want to shop at, fill in the name with any one of those things, because I want to support my neighbor.
Now, your incentive to support your neighbor is they are your neighbor. But there is a limit of amount of money that you will save that you go, I really love my neighbor but I’m saving a lot of money. What ended up happening was the mom-and-pop stores went out of business.
Now this exact phenomenon has happened for well over a century. It happened with the retail chains. It’s happening now with the big box stores going to people purchasing things online. What incentive do I, as a consumer, have to shop at my local department store if I can just purchase things online.
Now back in the day, the issue of why I had to go in was, I had to be fitted. I needed to know what my size is. But I know what my size is. If I went into the store and just bought it, didn’t try it on and I went home, I gotta get back in my car, I gotta go back to the store.
Nope. Everything that comes in the mail comes with a return label. All I do is put it back in the box. If you drive around any suburban neighborhood, you see boxes being delivered and you see boxes being picked up. It’s become easier and easier for people to transact business and it’s cheaper, too. We are, as a race, very lazy. So we will respond to cheap and lazy as much as we can.
Patrick Verel: One criticism I have for me. It’s not so much a criticism as it is a concern, is that this is the sort of thing that works pretty well when it comes to suburban places. You have, for instance, the capacity to have delivery trucks coming and going back and forth.
But it gets a little more dicey when you’re talking about compact places like New York City. In that this older model of having large truck loads of goods being brought to a store and then people go to them, that worked better for cities. Because you could deliver the goods at night, for instance and have them unloaded.
As opposed to now, when you could have delivery trucks traversing the streets day and night, all the time. Basically, that you have a problem infrastructure in that the cities aren’t going to be able to accommodate the increase in number of trucks and the different times when these deliveries are being made.
Gaicomo Santangelo: I think you have two issues here. You have the issues of the cities and you have the issues of the suburban areas. In the suburban areas, you’re absolutely correct. The model for the suburban areas is very well laid out and set.
But the model for the cities is a different model, but it works just as well. I live in New Jersey and if I order something on Barnesandnoble.com, I have to wait maybe two or three days for it to come.
However, if I lived in Manhattan and I ordered something on Barnes and Noble, they guarantee same day delivery because there are many Barnes and Nobles in the city. They literally just tell the people at the store, get a box, put the book in, send it to Santangelo. Then, I get my book that same day.
So it’s a different model, but it works. What we’re seeing is, with regard to your first question … or the second question about employment, there are more jobs being opened up in distribution centers at these companies.
They’re not full time manufacturing jobs, but just as many jobs that are being displaced perhaps, according to the companies, are being replaced by these part-time distribution center jobs. So there are employment opportunities out there that are being opened up by the city problem.
Will Amazon.com have things delivered by drones? Well, obviously not in Manhattan, but in the outer boroughs, perhaps. Somewhere far away in the middle of nowhere, yes. I think that’s really what we’re looking at right now.
We need to change the way we look at the model in very much the same way that we had to change from looking at mom-and-pop hardware stores to looking at big stores like Home Depot. This is the next logical step. But every single time that step is made, there is resistance at first and then afterwards people go, what did we just do?
Patrick Verel: If all the jobs move out to distribution centers, further out from the cities, what does that mean for your Main Street USA?
Giacomo Santangelo: You’re gonna see a lot more retail space available in whatever this Main Street USA ends up being. When people want to have coffee, they’re still gonna need their Starbucks, so that’s always going to be there.
There are certain things that you cannot replace digitally, yet. There’s always something out there that’s threatening the main stream thing. So when my students ask me or when people call me up and ask me questions like this, I always say, “Well, I don’t know. How did the people producing radio feel about television?” Or, “How did those pesky TV people when they were replacing the people at the old movie theaters?”
When you look at those examples, you go yeah but that was an old thing. In 50 years, someone will comment on us having this discussion today and say, yeah but that was a thing back in the beginning of the 21st Century. It really is the same thing.
It’s interesting to see that everyone arguing about retail right now are crotchety old people saying, hey you kids, get off my lawn. We just don’t realize it because the kids haven’t shown up yet, but we’re still saying it.