Last week was significant for at least two of America’s traditional retailing giants. Macy’s announced that it was going to close 100 stores by early 2017. Macy’s decision is the latest in a string of major retail downsizing over the last 12 months. A robust list is compiled here.
The very same week that Macy’s announced its store closings, Walmart (which had separately announced its plan to reduce the number of stores in the United States by more than 150), decided to buy jet.com, which is a direct competitor with Amazon.
It is clear that Walmart purchased Jet.com in order to compete with Amazon. This is the clearest signal that the changes in the retail market place are real and sustained. Just 10 years ago, economic pundits were writing about the “Wal-Mart Effect”. The phrase was popularized by Charles Fishman in his book The Wal-Mart Effect: How an Out-of-Town Superstore Became a Superpower. Fishman argued that Wal-Mart was so large and transformative in the way it did business that it is “beyond the market forces that capitalism relies on to enforce fair play [and] isn’t subject to the market forces because it’s creating them.”
“Wal-Mart is now so big that it’s possible to ask a whole set of questions that would have been irrelevant, it not downright silly, 20 years ago. For example, what is the impact of Wal-Mart’s wages not on its own workers, but on the wages in an entire town, or in an entire industry? What is Wal-Mart’s impact on the variety and availability of consumer goods? What is Wal-Mart’s direct impact on sending U.S. manufacturing jobs overseas? What is the impact on local economies of Wal-Mart’s abandoning old stores? What is the impact of Wal-Mart-and its suppliers-on the environment?”
Now, ten years after Fishman’s book, analysts are discussing Amazon’s effect on the retail industry (the so called “Amazon Effect”). Just like a decade ago, analysts attribute the changes in the retail marketplace to Amazon’s disruptive technology and business strategy.
The lesson to be learned here is that the Amazon Effect is not new, it is merely a sooner than expected iteration of the Wal-Mart Effect of the 1990s and 2000s. Moreover the market place changes pioneered by Wal-Mart, which caused market disruption and reallocation of resources, are the same type of changes that Amazon is now ushering in. These changes can be expected to impact various sectors that depend on the traditional retail sector.