Brick-and-Mortar Stores Undergoing Fundamental Change: Fmr Saks CEO

With retailers across America going through layoffs and bankruptcy and malls shutting their doors, the former Saks CEO Steve Sadove said “Brick-and-mortar is undergoing a fundamental change” during an interview on the FOX Business Network on Thursday.

“You have too many stores. You probably have double per capita the number of stores in this country than you do in let’s say, Europe. So you have too many stores and you have less consumers that are shopping in the stores because they are on the Internet,” Sadove said on Varney & Co. “Having said that, the consumer is very healthy. Retail sales are up 4% in the last quarter. They’re just not doing it at a Brick and Mortar store; traffic in the malls is down mid to high single digits.”

Sadove said the U.S. will see a lot more “ghost malls” as the lower tier malls close, but noted that the high end malls will continue to push forward.

The former retail chief noted that brick-and-mortar stores will have to fundamentally change quickly in order to get consumers back into physical stores, rather than shopping online.

Retailers have to come up with unique ways of getting the customer to feel that it is not the same old retail store, he said.

“It starts with the product and the experience, that’s why people go to stores. The brick-and-mortar retails have to fundamentally change. And they have to fundamentally change quickly. The world is evolving around them faster than they anticipated,” Sadove said. “For every store, it is going to have to be a different answer. It’s going to be a unique product. If all you’re selling is the stuff that everybody else sells, it’s going to be the lowest common denominator which is low price.”

As a way to promote better trade deals for the U.S., President Trump has proposed a border-adjustment tax on goods coming into the country. But Sadove argues that a border-adjustment tax is an “existential threat to retail.”

“These are low margin businesses in retail, if you start putting on this incremental cost tied to the cost of goods and you don’t have deductibility tied to the cost of goods, all of a sudden their profits go away. They’re going to close more stores than you’re already seeing and you’re going to see an acceleration in job losses,” Sadove said.

“We are talking about job creation, the [border adjustment tax] is a job killer. I think we are talking about a major change in retail.”