Daniel Calano, Prospectus, LLC

It’s that time of year again when retailers pursue their highest revenue days with post-Christmas blowout sales. But this year is a little different, with pre-Christmas sales also at blowout proportions. Inventories were high, due to weather that was too hot. Last year, you may recall, it was too cold and people declined to shop. Surely we must have had a perfect weather holiday somewhere, but I don’t recall hearing about it.

Starting with a disappointing “Black Friday” right after Thanksgiving, pre-Christmas sales drove prices down so far that post-Christmas sales will be great for consumers, but bad for retailers. Already, companies are beginning to warn Wall Street regarding their sales. Bed, Bath & Beyond has given early warning, and clothiers like Gap, Old Navy and Banana Republic are not far behind. Macys has been in the news as their stock has plummeted over the past few weeks, anticipating both difficult sales future and lower valued company.

In contrast to this, it is reported that online sales have been up 15% year over year. This is an important point, since while overall sales will be at best modest, the biggest sufferers are mall-type stores, where rents are high and traffic is low. At least currently, this retail divergency between stores and online is a zero sum game. While stores are quickly learning to have internet presence and sales, current data shows inverse correlation between online and in store, for the same company. For example, Nordstrom reports a downward trend of 2% year over year in stores, but up 11% online. Overall, competition is fierce, and brick and mortar real estate continue to suffer the most.

Most of the reasons why are rather obvious. It is certainly easier to stay home, surf and buy on the internet while watching football or cooking Sunday dinner. I don’t care what the weather is, that scenario is more convenient. What is newer, is that potential buyers can consult with Google, decide what they want to buy for gifts, and even if they go to a mall, they are less likely to linger and randomly shop in the same way. The trip to the mall is shorter, with shoppers having a few objectives in mind, and a need to get back to other pressing social and business items.

If that is not enough, look at the demographics. The two largest demographic groups are millennials and baby boomers, comprising over 50% of the total U.S. population. But think about them as consumers. First, millennials are still paying off college debt and occupying apartments at record high prices. They are not ready to buy “stuff” yet, as their living spaces are small, and probably transitional. They are not yet buying homes, and thus all home improvement, decorating and other furniture fixtures and equipment are not at the front of their minds. At best, millennials will spend money on dining out in somewhat expensive restaurants and taking out for lunch. Baby boomers are simply hoping they have enough retirement funds for their newly longer lives. They are worried more about healthcare costs and tight living budgets than they are about new suits. It also seems obvious that they would be shedders of things rather than accumulators, as they enter their seventies.

Probably the gen xers are the best candidates for buying. They are more typically homeowners with families, and thus buying furniture, lawn equipment, Christmas gifts, etc. But they also have large financial obligations for those same families in the way of education, family healthcare, and growing housing costs. They also only comprise 22% of the population.

When I put all of this together, it seems to me it will take a whole lot more discretionary income and spending before this situation can improve. It is also apparent that shopping malls and independent stores are fighting an uphill battle against internet spending. With two day delivery on Amazon Prime as a start, and other transportation modes running from Uber commerce to drones potentially delivering in a few hours, there is really little reason to trudge to the malls. Those malls that have other things to do, besides shopping, will be the winners, but the victories may be pyrrhic.

Daniel Calano, CRE, is the managing partner and principal of Prospectus, LLC, Cambridge, Mass.