Despite “retail apocalypse” headlines, store closures are part of a natural evolution of retail, says a Ball State University researcher. Steve Horwitz, distinguished professor of free enterprise at the Muncie, Ind., U.S. school, is not surprised that more than 1,700 stores are expected to close in 2020.
“These closures are part of an ongoing larger process of economic transformation as we move from old-school brick-and-mortar retail to firms that can best figure out how to leverage not just online, but the platform economy type processes—pick up at the store and/or quick delivery to the home—for their industries,” he says. “We are living through a major transformation in the way people buy things, and some companies haven’t figured out how to meet the way people want to shop now. Target and Costco are thriving. Kroger has figured it out. They win. Those other guys lose.”
The changes are part of the “dematerialization” of the economy—a focus on experiences rather than things, Horwitz says.
He also points out that while Pier 1 Imports, Sears, Kmart, and Walgreens are reducing the number of retail stores, smaller companies are opening in larger numbers in other sectors, particularly technology. Such new companies and their small staffs rarely make the headlines—at first.
“We tend to overlook that a new web design firm just opened because isn’t interesting, nor is it a story when a local restaurant hired two additional cooks and some serving staff,” Horwitz says. “And it’s not a big story when a financial services company hires new accountants or opens a new branch. Those, even if they get reported, get buried.”
He says startups are a risky business, no matter the industry.
“New firms opening are a crapshoot. Only one in five restaurants survives. Not much better for other service firms. How can we know what the big story is when a new firm opens? A local man who builds computers in garage is not a story, but when that company is worth trillions 40 years later? That’s the whole point after all—markets are a discovery process.”