Enhance Your Strategy with TV+ Planning Insights!

Get free access to advanced audience insights, benchmark competitors, and uncover new opportunities. Revolutionize your TV advertising now!

What's Happening to Retail? Can Better Advertising Help?

Dave Morgan
Dave Morgan  |  Executive Chairman
Updated: Apr. 01, 2022
Published: Feb. 28, 2014

Originally posted on MediaPost

As a headline in today's Wall Street Journal declares, "For Some Retailers, Success in Simply Staying Alive." The lede does it even better: "For some of the country's weakest retailers, less red is the new black."

The challenges facing the retail industry today have been well-chronicled. Overall, U.S. retail sales haven't grown much lately, despite aggressive price-cutting and promotion. What's going on in the retail industry? Is this just cyclical -- or is some larger secular trend on display here? I've chatted with a number of folks over the past year on this issue, and here is some of what I've heard:

More folks are shopping online more often. There's no question that one of the issues impacting physical retail sales is the growth of ecommerce. It's certainly a factor, but is ecommerce really big enough to be responsible for brick-and-mortar's slide on its own? According to U.S. Department of Commerce data, while retail e-commerce is growing five times faster than physical retail, it still represents only about 6% of consumer retail.

It's the economy. The U.S. economy is still bumping along in a sluggish recovery, with significant unemployment. There's no question this trend is affecting retail spend. Reductions in food stamps programs have had a big impact on retailers like Walmart that serve the broadest swaths of U.S. consumers.

Lower compensation. With more competition for jobs, companies have been able to limit the size of annual raises they have given to their employees. This has hurt their spending power.

Weather. There has been a lot of very cold weather in the U.S. this winter. Home heating costs are setting new record highs. The prolonged drought in California is causing rapid rises in food prices. Every additional dollar spend on necessities is a dollar less spent at the mall.

Retail is overbuilt in the U.S. According to data from The International Council of Shopping Centers, the U.S. had more than 23 square feet of retail space per person in 2012, compared to 14 in Canada, 6.5 in Australia and 1.1 in Italy. We shop a lot here, but probably not at a 20X rate relative to Italy.

Fewer impulse purchases online. I don't know if there have been many definitive studies in this area, but declared data studies (which as a practice I don't like, since what people say is quite different than what people do) claim that American consumers make significantly fewer impulse purchases online, relative to such purchases made in physical retail stores.

Teens aren't driving. Overall, the price of gasoline and less driving overall has certainly had an impact on retail, but trends with teens are making it even more pronounced for shopping centers. According to the AAA, the number of U.S. teenagers with drivers licenses has dropped significantly, from more than two-thirds of teens two decades ago to less than one-half today. With kids not driving, who's in the malls?

Shift from Big Box to larger, upgraded convenience & drugstores. We've all seen the growth of a next generation of Walgreens, CVSs and 7-11s, with more, grocery-like and readymade food products. That means fewer visits to full-service grocery stores and Big Box retailers. Clearly some impact here.

Advertising is not pulling its weight. I don't think that advertising is delivering for retailers the way it used to. For one, the massive loss of newspaper circulation in the U.S. over the past decade has hampered what used to be a very efficient local retail-marketing channel through both its display ads and free-standing inserts. Second, and maybe worse, the fragmentation in television and the failure of current TV ad systems to keep up at the local level have probably impacted retail traffic and profits. Retailers today are paying more for campaigns that reach a smaller group of people too often, and attempts by marketers and agencies to fix this problem by lowering CPMs is only making it worse. The product needs to be fixed, not just the price.

What do you think? Could better advertising help retailers overcome their current challenges?