There is a popular phrase being tossed around in business circles these days called the Amazon Effect. This refers, of course, to the impact that Amazon -- and by extension, all on-line sellers -- have had on the traditional brick-and-mortar physical retail store. Most of the articles that have been written about the effect have keyed in on such things as clothing, electronics, furniture, groceries, general household goods and the like. An ever-growing percentage of these items are now being purchased on-line and less in person at a physical store.

The result is that as their traffic and sales decline, stores are closing unprofitable branches and marginal retail locations. There are simply too many physical retail locations in the U.S. compared to the way people are shopping today. As on-line sales continue to increase and siphon off sales from malls, strip centers, and stand-alone stores, that real estate is being vacated, with a commensurately negative impact on local retail employment and local tax receipts (sales tax, state/city income tax, and real estate tax). Major retail employers and mall anchors like Macy’s, JC Penney’s, Sears, Kohl’s, and others have significantly and permanently reduced both their retail store count and their workforce. They’re simply no longer needed and they’re not coming back.

Much of this change can be attributed to the Millennial generation and the buying habits they’ve developed as a consequence of growing into adulthood in the smart-device age. Far more than any other age-demographic group, Millennials haven’t had to “learn” about on-line shopping, performing instantaneous on-line product research and comparisons or conducting any manner of personal business (financial, travel reservations, medical appointments, etc.) over the Internet via their device. Wireless activities that a 60-year-old Boomer brags to their friends about being able to do are as second-nature as breathing to most Millennials.

However, it’s not only the traditional physical retail store model that is changing.  Millennials have shown less interest than previous generations in acquiring historically-reliable material status symbols such as cars and formal business clothing. Transportation is rapidly becoming a commodity service rather than an ownership experience. The meteoric rise in ride-for-hire/ride-sharing services such as Uber, Lyft, and Zipcar shows how younger generations view routine travel as something that can be accomplished without the need for them to own the means of transport.

Car sales in the U.S. are beginning to slow after several years of “catch up” in the aftermath of depressed sales in the recession era of 2007-2009. In the post-1990 timeframe, U.S. auto industry sales of cars/light trucks (which include pickups and SUVs, vehicles not actually designated as “cars” by the government for purposes of EPA gas mileage requirements) are considered “good” when they exceed around 15 million units. The years from 2014-2017 have been around 16-17 million units, an extraordinarily strong sales level. But this is weakening and there is a feeling among many industry analysts that the shift in buying demographics augurs a lower long-range automotive sales level. Millennials have not shown the same affinity for conspicuous car ownership as prior generations. For them, ride-sharing will become an accepted, commonplace alternative to individual ownership.

Retail sales in the U.S. are approximately 5.5 trillion dollars per year. At the 2014-2017 average annual new-car sales rate of approximately 17 million cars/light trucks per year, assuming an average cost per vehicle of $30,000 each, that represents roughly 500 billion dollars -- nearly 10% of total U.S. retail sales. A significant reduction in retail car sales will represent a major shift in the American consumer retail sales model, with predictable negative downstream effects in employment and tax collection.

Almost as noteworthy as the retail impact of lower car ownership is the impact of the reduction in the supportive automotive supply and accessory market: the business model of the numerous stand-alone (whether brick & mortar or online) auto parts and accessory stores, as well as the large automotive departments at retailers like Wal-Mart and True Value, depends on individual car ownership and the hobby/pride-of-ownership aspect that that implies. People who ride-share will not buy expensive custom-made WeatherTech floor mats, chrome exhausts pipes or change their oil in the driveway on Saturday afternoon. “No one washes a rented car,” as the old saying goes.

A major reduction in individual car ownership may also have a huge impact on the retail bank lending model, since car loans are a big component of a bank’s product lineup, along with home/commercial mortgages, education loans, bank-backed credit cards, etc. A major reduction in one of the biggest income-producing elements of their offerings will have a huge effect on a lending institution’s profitability. Some smaller regional banks could go out of business or be forced to merge with other institutions in order to survive, or they will have to raise the cost of their other products to compensate for the loss of car loan income -- loan interest rates would rise, fees would increase, services would be curtailed.

The rise in self-driving technology is hastening the change to the individual ownership norm of the automotive market. The rapid increase in the day-in/day-out viability of electric vehicles is a contributing factor to the practicality of ride-sharing. Electric cars have fewer moving motorized parts than their gasoline-powered counterparts and the service/maintenance of electric vehicles will prove to be simpler and less expensive than cars powered by internal combustion engines. This is the ideal situation for companies offering vehicles on a temporary “as-needed” basis.

None of these developments mean the U.S. economy is going to permanently suffer or contract in the long run. It just means it’s on the cusp of major change. In the late 1700s, nearly 100% of the U.S. population was involved in agriculture to some degree, either as full-time farmers or just growing their own family’s food. These days, barely 5% of the country’s population is in agriculture, yet we produce incomparably more food than previously. The other 90-something percent of the workforce didn’t stop working when they no longer had to raise crops. The economy continually creates new jobs that need to be filled as technology and markets evolve.

Here is an excellent example: an older industry (the “hi-fi” industry, with its big speakers and complicated amplifiers, cables, turntables and the like) shrinks from mainstream status in the 1950s-90s to barely niche size today. A technologically-advanced company -- Velodyne -- that used to make audio subwoofers for home music enthusiasts turns its expertise to the newly-burgeoning field of 3D radar in the self-driving automotive field. Millennials may have no desire for subwoofers in their living room (being perfectly happy with the tinny sound of their iPhone’s miniature speaker), but self-driving cars that they can hire on demand? Yes, that they want. Velodyne reinvents itself to help meet that need.

The Emerald Square Mall may disappear, taking Macy’s and Sears with it. But new companies and new industries will emerge in their place and require a workforce to staff them. The economy will continue to grow and expand, even if it’s not business the way everyone has been accustomed to in the last 60 years or so.