Don Cunningham: The Changing World of Retail

By Colin McEvoy on May 9, 2017

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in The Morning Call and on the newspaper’s website on May 4, 2017. (Click here to read Cunningham’s previous columns.)

Don Cunningham

Don Cunningham

There are often symbolic ends to eras.

In our history, certain births or deaths, inventions or developments become markers in the passing of one era into another.

For me, the recent death of Albert Boscov, the patriarch of the Reading-based Boscov department store chain, is one of those moments. Mr. Boscov, at 87, left us this February as his style of retail has begun to leave the American landscape. Mr. Boscov was an old school retailer. Like Max Hess and Phil Berman of Hess’s in Allentown before him, Mr. Boscov mastered the appeal and economics of the multi-department, retail store, luring shoppers with discounts and promotions in one section and making up for it in others. Everything everyone in the family could need was in one building.

Today, everything everyone could need is one Internet search away, from multiple stores and multiple countries with the ability to compare prices from your phone or desktop.

Most large national department store retailers are closing stores and cutting employment. Boscov’s still has 45 stores, and is opening a 46th in Erie later this year. So, the legacy of Albert lives on but the timing of his death coincides with the end of department store dominance in retail that began after World War II.

The Boscov model is swimming against the tide.

Today, the retail trend is e-commerce, buying goods and products online that are delivered to your door. The parcel delivery person is the retail clerk. There are no checkout lines.

Between 2010-2014 e-commerce grew by an average of $30 billion a year in sales. The last three years average annual growth is about $40 billion. U.S. e-commerce sales are forecasted to rise by 9.3 percent over the next five years, reaching a total of $523 billion in 2020.

Brick and mortar retailers spend a lot of money on rent, inventory and employment for consumers to use the store as a showroom to look at the product and then buy it online.

Most significantly, about 89,000 retail jobs have been lost across the nation just since October. That’s more than the total number of coal miners across the U.S., about 75,000, which have engendered so much discussion and public policy debate.  Just as the Internet has forever changed the magazine and newspaper industry with free content available online, it’s left an equally indelible mark on retail and how consumers buy products.

For now, the Lehigh Valley is winning on both sides of the equation. With our available land, workers and access to market, we have become one of the largest centers of e-commerce distribution on the East Coast. And, because of the size of our population – more than 650,000 – and our median income levels, along with a limited number of major shopping malls and major department stores in comparison, we haven’t seen the loss of stores like Macy’s, Sears and Kohl’s that has occurred across the country.

There are still 34,000 retail jobs in the Lehigh Valley, our second largest employment sector after health care. There are 25,000 jobs and growing in e-commerce, warehouse and distribution in the region.  This sector is likely to grow to about 30,000 jobs by 2020, as there is another 4 million square feet of industrial development under construction today with much more in the works.

Just a few weeks after the death of Albert Boscov, whom I had the pleasure of meeting several times and working with during my time as a Pennsylvania cabinet secretary, I was sitting in a presentation in Toronto on the state of development markets in the U.S.

K.C. Conway, the senior vice president and credit risk manager of SunTrust Bank, was providing us with a reality-based breakdown of what shifts in the retail market mean. Every $1 billion increase in e-commerce sales translates to another one million square feet of industrial development to meet that need. Conversely, it means a loss of 10,000 square feet of bricks and mortar retail.

E-commerce facilities require three times more space on average than traditional warehouse users and employ nearly three times more people.

The retail and industrial sectors are converging into one,” Conway told a room full of industrial and commercial real estate brokers, financiers and developers.

There is no doubt we have entered a new era, and there’s no turning back. We have begun to see smaller retail shopping center across the Lehigh Valley become vacant. There will be more. It’s unlikely retail will come back to these locations. This creates opportunity for local governments and developers to work together on new opportunities. It will require rezoning. Those sites could transform into new manufacturing zones or residential developments.

With change comes opportunity but it also comes with a sense of loss. We know that the only constant in life is change yet we are forever surprised when the familiar becomes the unfamiliar.

I’m thankful that we had Al Boscov. He was a guy who cared about his employees, his stores and the communities they served, particularly his beloved Reading and Berks County.  His customers gave to him and he gave back to them. Retailers, however large or small, are part of the fabric of a community, particularly those that are locally owned and part of a downtown.

Next time you go into a store and look at something only to size it up with the intent to buy it later on the Internet, take it to the counter and buy it. Do it at least once to honor Mr. Boscov.

If you don’t, please spare me the lament about the new warehouses in the Lehigh Valley.

RFP Issued for Talent Supply and Industry Sector Analysis, Strategic Action Plan

The Lehigh Valley Economic Development Corporation (LVEDC) has issued a formal request for proposals (RFP) seeking proposals for a Talent Supply and Industry Sector Analysis &[...]

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