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Financialization is Cause of Decline in Brick-and-Mortar Retail in USA

November 27, 2020 20 comments

Here is another topic I have been thinking about writing for past few years. As most readers know, there is no shortage of evidence that physical retail outlets have been on an irreversible decline in USA and other parts of Anglosphere for at least the past decade. In fact, most idiots in this group of countries seems to believe that the rise of Amazon and other online retail outlets was a cosmic inevitability. Except, that this is not true. The thing is.. physical retail outlets are in very good shape in every part of the world that is not an Anglosphere country. Even more curiously, countries with a very well-developed online retail sector such as China still have a much bigger and dominant physical retail sector. It is as if online retail outlets can coexist and complement physical retail in all countries that are not part of the Anglopshere.

So what is going on? Why is the retail sector, also, in free fall throughout the Anglosphere. As you will soon see, the factors driving demise of physical retail in this group of countries are almost identical to those which previously led to widespread de-industrialization, privatization of public goods, episodes of financial austerity, rise in precarity of jobs and careers and much more. It comes down to late capitalism aka neoliberalism aka financialization. To understand what I am talking about, let me ask you a simple question. How do physical retailers in the West manage to go under while their equivalents in other countries remain strong or grow. This is especially hard to explain when you realize that people still need the products which they sell ranging from clothes and shoes to furniture, appliances and musical instruments.

Let me try explaining the changes I have witnessed in this sector over the past two decades. As some might remember, I moved here when I was 20 in the late 1990s. At that time the physical retail sector in West, while having gone through a few prior contractions, was still quite healthy. The shops and department stores were well stocked with a diversity of products that people wanted, there were always enough salespeople around and businesses were still making a steady but decent profit. So what changed between late 1990s and today? Well.. for starters, there has been a shrinkage in amount of disposable income for most people in West. But this, by itself, does not explain why physical retail is still doing very well in Continental Europe, East Asia and every other part of world. Also, many products sold in West have become relatively less expensive due to outsourcing from China and Mexico.

And yet retail stores in the West, large and small, have been going out of business at a much higher rate than at any time since WW2. More problematically, the ones going out of business are not being replaced with others of similar size. Even many large chains which survived the great depression have recently gone bust or are on the verge of going tits up. What makes Western physical retail so fragile when compared to its Asian or European counterparts? Here is my partial explanation, based on what I saw over past two decades. Let us start by talking about three large departmental store chains, which shall remain unnamed. Out of these three, two went belly up during past decade while the other one is on life support. I am using these three as examples because I used to frequent them and bought tons of stuff from them over the years.

See.. in the late 1990s, all three chains were doing very well. They sold tons of stuff which people wanted, had knowledgeable sales staff and paid attention to the quality of products they were selling. Sure, they were more expensive to shop at than WalMart but they had no problems attracting customers and making a steady decent profit. The demise of first chain, which used to be a family name in party of country I live in, began once a management style took over in the mid- to late- 1990s. Under the guise of increasing shareholder value, the new management started doing short-sighted shit such as selling their ownership off their coveted physical retail space and renting it back, laying off older experienced employees, flooding their shelves and racks with items of lesser quality and making their remaining employees push credit cards and extended warranties. A brand name which was once synonymous with good quality, reasonable prices and experienced salespeople increasingly became associated with poor customer experience and shitty products.

Increasingly, decisions about which products to stock were exclusively made by a bunch of MBAs and other assorted bottom-feeders in their ‘headquarters’. They had no interest in the feedback of their employees who understood their local markets and customer tastes far better than the greedy assholes at HQ. To make matters worse, they spent all their short-term financial gains on giving themselves hefty bonuses rather than spending that money on updating their stores. You can guess how all of this ended. After a decade of such bold and innovative changes in management style, a large chain which was once a household name in that part of the country went under. Oh.. and they stiffed their employee pensions on the way out. If all of this sounds familiar, it should be because this is the rough template followed by almost every retail chain that has gone under or is in the process of doing so.

The next chain I am going to talk about is Sears, and most of you know how that shit went down. While Sears was being mismanaged for at least two or three decades, things went especially bad towards the end (link 1, link 2, link 3 and link 4). So let us move on and talk about another large and well-known departmental store chain which is not dead yet but is pretty close. Once again, it went down the same pathway of “new management styles” which led to under-staffing, selling inferior products, trying to push products which nobody wants to buy, spending little to no money on updating stores, an incredibly bad online sales portal and treating both its employees and customers like shit while helping themselves to tons of money in the form of performance bonuses.

But you know what is truly surprising? The pattern of management malpractice and looting remains constant in the Anglosphere whether the afflicted corporation was selling clothes, shoes, appliances, electronics, toys, guitars or making appliances, cars and aircraft. Their demise was not, therefore, due to business conditions in that sector. Rather, it was due to a very specific style of management which gained primacy in Anglosphere starting in the 1980s. To put it another way, the management of western corporations has become the functional equivalent of viruses that infect cells, extract all the resources they can and then move on to infect other cells to continue this cycle. The poor adoption of this parasitic ideology outside the Anglosphere is also why Asian companies remain dominant in Automobile manufacturing, continental Europe still retains a decent percentage of its manufacturing infrastructure and physical retail outlets outside the Anglosphere are still doing just fine.

What do you think? Comments?