Death of the Big Box

Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Just as developers push “big box” store projects intown, closer to city centers like Atlanta, the age of the “big box” itself is ending.

Best Buy (NYSE: BBY) was the canary in this coal mine. Since April 2009, just after rival Circuit City closed, Best Buy's stock is down 58%. Now founder Richard Schultze wants to take it private, a move haunted by skepticism that anything can save this troubled electronics retailer.

Barnes & Noble (NYSE: BKS) seems to be following down the same path.  Since its archrival, Borders, closed its doors in the middle of 2011, BKS is down 25%, despite having an e-book reader called the Nook that drew strong reviews against Amazon.com's Kindle. Nook sales are down 12%, and even online sales are down, as many consumers fear being left with an orphan device.

When I began work on this piece my original intent was to ask whether the stores could be saved. They have plenty of space for events and community meetings, they have coffee, they have ambience that people like. But I came to realize these are selfish motives. I'm a writer, and I like to think there is a physical space where I might find comfort.

If there is a business model for event spaces, someone will develop it. Barnes & Noble sells books, as well as music and DVDs. All these products are disappearing into the gaping maw of electronic networking. The process by which content is sold and consumed is changing irrevocably, and like newspapers book stores are too tied to the past to move into this new space. That's a game for entrepreneurs.

But it also occurs to me that there are other big box stores threatened by the digital realm. The experiments in “drop-off points” by eBay (NASDAQ: EBAY), recent attempts by Amazon.com (NASDAQ: AMZN) to experiment with drop-off boxes at 7-11 stores, and the retail expansions of FedEx (NYSE: FDX) and UPS (NYSE: UPS) all point to a growing merger between the virtual and real worlds. The job of shopping, whether you see it as a chore or a joy, is moving online rapidly, and “showrooming” is becoming commonplace.  Shoppers carry their apps with them into stores and become as skittish approaching a real cash register as they do one in an online store.

All of this points to real threats against other big box retailers, whether they're selling clothes like Ross Stores (NASDAQ: ROST) and Kohl's (NYSE: KSS), or mainline retailers such as Target (NYSE: TGT). WalMart (NYSE: WMT) seems to be the only big box retailer that is taking this threat seriously.

Those who don't think the box box can be threatened need to go to their local shopping mall. A mall that isn't also an event center, a virtual downtown, and a real destination is now emptying out. Atlanta, where I live, once had a dozen viable shopping malls, and today it may have fewer than a half-dozen. The rest – North Dekalb, Northlake, Gwinnett Place, South DeKalb, Southlake – the stink of death is on them.

It can happen to the big boxes as well. Unless you're a destination store, like Costco (NASDAQ: COST), a place people come to with a list and a purpose, you're in trouble, and I don't want to invest in you.

 

Are there any big box retailers you think are immune? And what can they do to fight off the threat?  


DanaFBlankenhorn owns shares of Costco Wholesale. The Motley Fool owns shares of Amazon.com and Costco Wholesale. Motley Fool newsletter services recommend Amazon.com, Costco Wholesale, eBay, FedEx, and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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