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Retail Shakeout Could Spell Growth

26 Jan, 2009 By: Thomas K. Arnold

The worsening economy continues to make headlines, even as much of the nation basks in a sense of optimism and hope as our country’s first black president takes office. Barack Obama will likely enjoy an extremely short honeymoon, however, as the euphoria surrounding his inauguration has a lot more to do with his promise of change than with the color of his skin.

Presidents don’t really have much of an effect on the economy, but if the economy happens to tank while one party is in power, watch out. And the pickle facing the Obama administration is that it will be expected to fix something over which it really doesn’t have much control.

So in the coming weeks, in the coming months, expect to see more expensive Band-Aid fixes, while the economy slowly but surely fixes itself. In the meantime there’s bound to be more fallout, with a growing number of analysts predicting that the bank failures of 2008 will be followed by a dramatic retail shakeout in 2009.

These predictions are based on the presumption that we are overstored. In virtually every retail category, we have not one but two market leaders, each with histories of aggressive growth and a yen for building stores right next to the competition. Do we really need Lowe’s and Home Depot, Staples and Office Depot, Best Buy and Circuit City, Barnes & Noble and Borders, Toys ‘R’ Us and KB Toys or Bed, Bath & Beyond and Linens ‘n’ Things?

Clearly we don’t. In at least three of these competitive scenarios, the weaker chain is going, or has already gone, out of business. And analysts warn as many as 200,000 storefronts could vanish in 2009. As St. Joseph’s University marketing professor Scott Testa told The Associated Press, “I think 2009 is going to be a bloodbath.”

For the home entertainment business, the effects will likely be minimal. The rental business appears to be holding its own, while the biggest sellers of DVD and Blu-ray Disc software — Wal-Mart, Best Buy, and Target Stores — seem to be weathering the retail meltdown quite well.

It should be noted that during our own industry’s shakeout, back in the early 1990s, the number of rental stores slid drastically, and yet spending on home video held steady as Blockbuster and other chains, with their bigger and ostensibly better stores, gobbled up independents’ market share.

Ultimately, fewer storefronts did the same amount of business, and then paved the way for future growth.
Here’s hoping history repeats itself.

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