A good way to predict the future is to take a look around at the present. There are clues everywhere telling us what is about to come.
Recently, I went into a mall to buy a vacuum cleaner and looked at an array of products on the shelf. When I narrowed down my list to the two that I liked, I scanned the product’s bar code and was connected to Amazon’s site where I was able to read all of the reviews. I wanted to make sure that people who had bought the product actually liked it. Satisfied by the reviews, I then checked to see if I was buying the vacuum for the lowest price. Since the price on Amazon was lower, I ordered the item from my phone while I was still in the store! I am not sure how much longer these stores can stay in business when every product a store sells can be found for less at Amazon.
Amazon operates on a razor thin margin of less than 1%. Let that sink in for a moment. When Amazon sells an item for $100, the profit they expect to make on that item is $1.00. In addition, if you are a “prime” member, shipping is free. Unlike malls, which pay top dollar for the best locations, Amazon warehouses are located in the middle of nowhere making their rental overhead significantly less expensive that any mall.
It’s not just the cost difference of Amazon, it is the whole shopping experience. Go to any mall now and you will see that traffic is down. The main traffic at any mall now is for the Apple store and food court. Apple has a monopoly. If you need to get your Apple product fixed, you have to go to the Apple store. Apple is famous for its retail clout, beating its competitors hands down. I think we are going to come to a point where landlords are going to have to pay Apple a fee for using their location. Without an Apple retail store, mall traffic would likely grind to a slow but inevitable halt.
I believe many of the big retail mall operators like Simon Property Group will eventually encounter a severe downturn in their business. Mall operators use tons of debt to finance their operations and are dependent upon tenants to finance their cash flow. As consumers continue to pull back from the mall experience, many of these mall operators will go out of business. In addition, many people under thirty have no connection to the mall experience as they buy their products directly online. The teen that used to pester mom to “Drive me to the mall!” now buys her clothes online. The multiplex movie experience no longer exists for this demographic either, as they consume their media directly from YouTube, Hulu, Amazon and Netflix. So, I predict in years to come, even the movie chains will have to revamp their business model to stay relevant and financially competitive.
Which leads me to the television industry. Many cable channels have survived by having their customers pay exorbitant cable fees, having been forced to pay through their bundled television packages which have propped up the industry. Most of these channels don’t have enough of an audience to make money on advertising alone. The entire MSNBC brand only survives because it is living off the scam of bundled cable. If it had to stand on it’s own two feet, it would have been bankrupt long ago. The money to keep this elitist-left-wing-trash propped up comes mostly from those bundled cable and satellite fees.
Last, but not least, we come to sports broadcasting. ESPN will also come under pressure. Sure, people love sports and the N.F.L. I get it. But everything has a price. Is the consumer ready to spend $50.00 a month for ESPN? I’m not so sure. Billions were spent on NBA and NFL deals over the last few years and ESPN has been able to pass on this expense via bundled cable. In the future, the consumer is going to decide if he likes football enough to spend $50 a month for it. ESPN denies it, but they are worried about unbundling. They know that once the consumer sees what he actually has to pay to watch a game; he may do a cost/benefit analysis and decide it’s just not worth.
It seems like a short time ago there was a Blockbuster video rental store on every corner. Blockbuster believed it was in the movie rental business without really understanding they were in the late fee business. Then Netflix arrived. Netflix killed Blockbuster by not charging late fees for returns. Netflix knew Blockbuster’s main source of revenue was in those late fees. Once Netflix killed that revenue source, there was nothing left to financially salvage the company and Blockbuster went belly up.
Like Blockbuster, and the many companies and industries listed above, losing touch with customers’ needs bodes ill. For industires such as malls and media, the reckoning is on the horizon.