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Starbucks' Schultz makes it official: Casual shopping is dead

Shares of Starbucks (SBUX) are up in early trading after the company reported another strong quarter driven by 5% comparable same-store sales and success overseas. The company has now posted better than 5% revenue growth in existing locations for four straight years; a spectacular accomplishment for any company let alone one peddling high-end coffee in a moribund economy.

Hidden in the results were remarks from CEO Howard Schultz that confirmed some of the worst fears for other brick and mortar retailers. “The large slowdown we saw in the month of December in traffic was very broad based. It wasn’t unique to any particular region. It wasn’t unique to any particular day-part or product set or product line. There was just fewer people out there shopping, and so fewer people for us to capture and provide some great experiences in our stores.”

Schultz says the shift in store traffic in December is permanent and comprehensive. From any other retail CEO such a comment could be dismissed as whining or weakness. Howard Schultz’s observations about consumer trends are to retailers what Papal bulls are to Catholics. It is the last and final word on a topic. Ignore him at your peril.

Starbucks will be fine as long as Schultz is there, but not all the remorse or piety in the world can save the less adroit brick and mortar retailers from damnation now. If the mall is empty, execution on a store level is meaningless. The vast majority of the retail universe is way, way behind on the trend away from stores.

“I think the companies that are going to be in trouble are the Dollar Trees (DLTR) the Dollar General’s (DG) and the Walmart’s (WMT) of the world,” says NationsShares’ Scott Nations in the attached clip. The idea is that the lower end of the demographic is going to be the first group hit when the foot-traffic Apocalypse inevitably spreads from the mall to the free-standing retailers.

The dollar stores may be the first to feel it, but the shift away from destination shopping isn’t going to stop at dollar stores. Americans are still going to leave the house, they just won’t be going to the mall. The opportunity away from retail is in creating destination entertainment venues and other ways to experience social interaction without being surrounded by merchants and elevator music.

As for the retailers themselves it’s time to think outside the big box. As one example a Target (TGT) store might be a ghost town for shoppers but it could be converted into an outstanding distribution center. More than 10x the merchandise could be packed into the same location and goods could be delivered just hours after a customer places an on-line order.

Most retail execs aren’t prepared for that kind of shift in thinking. They’ll stay married to the destination shopping concept and go down with the ship. If they’re lucky Jeff Bezos will buy them for the real estate and turn them into distribution centers for Amazon (AMZN). If not it’s just a slow slide to liquidation.

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