Car Companies Close Stores As The “Amazon Effect” Takes Hold

Tesla, Inc., won’t be closing all its retail stores, but the game will continue to change for the electric automaker and its competitors. While Tesla is backing off its plan to close its stores and sell all its electric vehicles online, up to 30 percent of its retail stores will be closing.

Tesla is joining several major global companies feeling pressure to close retail stores as shareholders put more pressure on management to increase performance and profits. Stores may not be worth the cost as companies such as Amazon lead the revolution toward online shopping and fast delivery services, analysts say. Consumers are making more purchases every year on their smartphones and tablets, with much less interest in going to retail stores for the hard-sell shopping experience.

The electric carmaker will continue to evaluate the economics of closing more stores in the future. Tesla will be raising its EV prices by about 3 percent on average worldwide. The base model of the of the Model 3 will stay at $35,000 to be price competitive. Increases will be applied to more expensive variations of the Model 3, along with the Model S and X on March 18th, the company said.

The Amazon model has been spreading across a broad spectrum of markets, where consumers expect to avoid sales pressure and the time and energy needed to go out shopping. It’s having a devastating impact on retailers.

Retailers in the U.S. will be closing more than 5,300 stores, according to a new study. The staggering rate of retail foreclosures started two years ago and will continue into 2019, the study says. It will cover a wide spectrum of products on the market, with companies such as Gap, JCPenney, Victoria’s Secret, Abercrombie & Fitch, and Payless making sizable store closures in the near future.

Retail stores closed a record-breaking 102 million square feet of space in 2017. That number leaped to 155 million square feet of closures last year, according to estimates by commercial real estate firm CoStar Group. Related: Is This A Precursor For Peak Oil Demand?

"This year we are predicting more of the same in the retail space," said Drew Myers, a CoStar senior consultant.

General Motors, Ford, and Fiat Chrysler have closed down significant portions of their dealer networks over the past decade as shareholders and capital fund investors have upped the ante in their expectations. That strategy has shifted lately to cutting corporate costs internally. Expectations are that market dynamics are shifting through government emissions regulations and the emergence of autonomous vehicles and mobility services.

Automakers will likely be selling a lot less cars over the next decade or two, motivating oil companies to broaden their portfolio into liquefied natural gas and other alternatives beyond traditional motor fuels. President Donald Trump has been pushing for greater LNG sales opportunities as part of negotiations with China — building more potential for natural gas stakeholders.

GM announced layoffs of 4,000 workers last month as part of a broad cost-cutting strategy. It’s part of a broader series of cuts that GM expect will save the company billions of dollars for declining auto sales expected to take place in the next few years.

Ford Motor Co.’s restructuring would be “more extensive” than GM’s and could involve laying off tens of thousands of employees around the world, analysts at Morgan Stanley think. Ford CEO Jim Hackett has been under intense pressure to increase profit, and has told employees that the end game will be doubling company profits over what was reported last year.

Robotics is expected to play a huge roll in the imminent future, in the shape of autonomous, self-driving vehicles and factories relying on robotics and less on human labor. Tesla has led the way at its Fremont, Calif., production plant, and several global automakers are increasing their automated production lines.

Related: Two Largest Oil Price Benchmarks Are Set To Diverge

Amazon has added grocery store shopping and delivery to its assets. Its 2017 acquisition of the Whole Foods Market has been part of that strategy. Amazon is orchestrating its business model through the organics and health-food stores. Customers can order their groceries online and have them shipped through Amazon’s network of independent contractors.

Like Uber and Lyft, Amazon is credited for driving the “gig economy” with fewer employees and independent contractors being paid less and driving their own cars. Consumers have been spoiled in recent years by shopping on their phones and computers for every product they can think of on amazon.com at competitive prices, and then having their purchase delivered within hours.

Grocery store giant Kroger has seen its share value drop after the company published its earnings report showing that its investments in tech and delivery services are taking a bigger bite out of its 2019 profits than expected. Kroger is being hit by Amazon’s presence and also by other giants like Walmart getting into the grocery shopping and delivery business.

By John LeSage for Oilprice.com

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