People Are Smoking Less: So Why Has the Number of Tobacco Shops Doubled?

Hmmm. About that supply and demand thing. The number of people smoking is declining. But the number of specialty shops catering to them is increasing?

Would this not be a form of economic suicide?

Well, actually, it may make a strange sort of sense. As major retailers like pharmacy chains declare themselves tobacco free, stores dedicated to the habit and its many accessories are proliferating.

The logic is that with greater scarcity, someone specializing in whatever the factor may be can charge more and make a greater profit. This does run counter to the aggregated, scalable theories that have dominated the economy in the internet age. But until someone figures out how to replicate the smoking experience online, physical enjoyment and the retailing that supports, will continue to have a place in that economic system. JL

Patricia Clark reports in Business Week:

Hard-core smokers are increasingly a narrow market targeted by specialty stores, rather than another shelf behind the counter at mass-market retailers.
Smoking in the U.S. has been declining for decades, but retailers specializing in tobacco sales are booming. The number of tobacco shops in America doubled between 1998 and 2012, to more than 9,000, according to Census data.
That growth coincided with rising cigarette taxes, indoor smoking bans, and other policies aimed at snuffing out the habit. The share of Americans who smoke fell to 19 percent in 2011, from 23.5 percent in 1999, according to the Centers for Disease Control. Why are tobacconists thriving when the market for their products is shrinking?

Interviews with industry experts and smoking researchers don’t lead to a single, clear answer. Some say higher cigarette prices have created a niche for retailers specializing in discount brands. Others point to the rise in electronic cigarettes. There are 3,500 “vape shops” in the U.S. specializing in e-cigarette wares, Bloomberg Businessweek’s Karen Klein reported last year. Many of those stores operate out of kiosks, leading the government to exclude them from the tobacco store category, Census spokesman Robert Bernstein says.
The new stores may be catering to committed smokers who have continued lighting up despite public health efforts to get people to quit, says Lisa Henriksen, a senior research scientist at the Stanford School of Medicine’s Prevention Research Center. “It’s the hardening hypothesis,” she says. “These stores may have fewer customers, but the ones they have may be buying in large volumes.”

Tobacco shops are largely off the radar of antismoking advocates and researchers, who are generally more interested in cigarette sales at convenience stores, supermarkets, and pharmacies. Those three categories of retailers accounted for 80 percent of tobacco sellers in 2012, according to a recent study funded by the State and Community Tobacco Control Research Initiative. Standalone tobacco stores, on the other hand, made up just 4 percent of sellers.

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The growth, meanwhile, has been uneven. There are 6.3 tobacco stores for every 100,000 people in Arkansas, among the highest, and 1.4 per 100,000 people in Georgia, among the lowest. The number of stores specializing in expensive cigars and other high-end products has declined over the past decade, according to Glynn Loope, executive director of Cigar Rights of America, which lobbies for premium cigar shops.

That means fewer stores like Milan Tobacconists, a 102-year-old shop in Loope’s hometown of Roanoke, Va., and more like Tobacco Superstore, an 86-outlet chain that calls itself the largest tobacco retailer in the South. The chain, which was founded in 1993, according to its website, sells a variety of tobacco products and paraphernalia (cigarettes, pipe tobacco, “moist snuff”), as well as candy and lottery tickets. It offers monthly promotions on such products as Swisher Sweets cigars and melon-flavored liquid for electronic cigarettes.
The discounters are probably taking advantage of two trends. Convenience stores dedicate more space to well-known brands, says Andrew Hyland, chair of the department of health behavior at the Roswell Park Cancer Institute in Buffalo, N.Y. The name brands are more profitable for retailers. Rising cigarette prices, meanwhile, have created “opportunities for niche retailers to make a profit selling lower-margin products,” Hyland says.

Many discounters also sell e-cigarettes and other products that convenience stores are unlikely to carry in wide variety. Hookahs—communal water pipes often used to smoke flavored tobacco—are another likely factor in the growth of tobacco stores, says Loope. If you don’t believe him, ask a teenager: Eighteen percent of high school seniors had smoked a hookah in the last 12 months, according to a recent survey published in the journal Pediatrics.
The decision by pharmacy chain CVS (CVS) to quit selling cigarettes may also be a sign that hard-core smokers are increasingly a narrow market targeted by specialty stores, rather than another shelf behind the counter at mass-market retailers. “It could be displacement,” says Stanford’s Henriksen, “as more stores see the wisdom of giving up cigarette sales.”