Don Cunningham: Lehigh Valley is a Microcosm of the Retail Battlefield
By Don Cunningham on January 18, 2016
Analysis of the retail market today requires taking a hard look at two very different sides of the same coin.
There is traditional brick and mortar retail. The kind with store clerks, product displays, and signs in the windows and at the ends of the aisle. Then, there is e-commerce. The kind with computer clicks, email sales, and FedEx and UPS delivery people.
E-commerce and brick and mortar retail are very different sides of the same coin. In fact, they are not really friends, a civil war is brewing.
The $281.3 billion e-commerce industry in the U.S. has grown more than 12 percent a year every year since 2010. That growth is expected to increase from 2016 forward with at least another two percent of annual growth.
In comparison, traditional brick and mortar retail in total is not projected for much growth at all. Warehouse clubs and supercenters, like Walmart and Costco, have been the only growth area for traditional retail with 2 percent annual growth from 2010 to 2015. That’s expected to bump up a little to 2.4 percent annual growth from 2016 to 2020.
That’s been the bright spot for brick and mortar retail. Department stores sales saw a 4.5 percent reduction from 2010 to 2015, which is projected to continue, according to IBISWorld, a leading publisher of business research and intelligence. Another 2.6 percent reduction is expected from 2015 to 2020.
One side of the retail coin is clearly on a winning streak.
What does this mean for the Lehigh Valley?
The emergence of e-commerce – Internet-based purchasing – has quickly spawned a new back economy and the Lehigh Valley is at its forefront. As delivery people have replaced store clerks for a growing number of retail sales, a supply chain of warehouses, fulfillment centers, truck depots and deliver services have been put in place.
Why the Lehigh Valley? Location, location, location. The Lehigh Valley and Berks County offer access to 1/3 of the nation’s retail consumers within an eight-hour truck drive on the East Coast, along with available land, an available workforce and generally good roads and rail lines for access.
It translates to a fast growing warehouse, transportation and logistics sector with more than 22,000 total jobs. More than 5,000 of those jobs have been added since 2010.
To put that in perspective, that’s more total jobs than Bethlehem Steel generated during most of its heyday in the Lehigh Valley.
Walmart has built 2.4 million square feet of logistic facilities on the former site of Bethlehem Steel. All of it for its e-commerce competition with the giant of the industry, Amazon, which also has a large presence in the Lehigh Valley and the likelihood of expansion here in the near term.
“Amazon is truly in a league of its own,” Ben Schachter, a retail analyst at Macquarie Research, recently told The New York Times. Of the $94 billion of growth in retail sales in 2015, Amazon saw $22 billion of it, nearly a quarter.
The FedEx super hub that has been under discussion and in development on former LVIA Airport land for several years is a bellwether of the trend. The facility will be FedEx’s largest on the East Coast with the ability to move 70,000 packages per hour.
What else does this mean for retail growth in the Lehigh Valley?
It’s most likely that any new shopping or retail centers that get developed will be primarily large box warehouse clubs or supercenters, such as Hamilton Crossings in Lower Macungie Township, which will be anchored by Whole Foods and Costco. The days of the shopping centers populated by a lot of small stores are likely over unless there is a shift in market dynamic and consumer habits.
For our cities, it means downtown urban retail will see challenges from e-commerce but not likely from new suburban shopping centers. In Bethlehem, the notion that redevelopment of the Martin Tower land in west Bethlehem would create a “new downtown” in Bethlehem is far-fetched at best. Since 2008, in the entire United States, only one small lease retail center of more than 1 million square feet has been built.
The competitor of urban retail will remain that other side of the coin, e-commerce. I, for one, however, have not given up on the human desire to have a shopping experience in a cool downtown with food and drink nearby holding its own against just clicking a button on a computer in solitude.
Either way, the Lehigh Valley is well-positioned to win with both sides of the coin.
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