As technology becomes increasingly prevalent in our day-to-day activities, brick and mortar retailers have struggled. In fact, food retailers, apparel retailers, and retail REITs have declined 22 percent, 10 percent and 9.2 percent, respectively, year-to-date through October 26.
On the other hand, internet retailers in the S&P 500 Index have returned 33 percent during the same period. One thing remains obvious, as consumers continue to shop online, brick-and-mortar retailers will continue to close stores, most likely, into the foreseeable future.
So, why have more than 5,000 major retail stores closed in 2017?
The steady decline is a result of the rapid increase in e-commerce. In a recent report published by eMarketer, U.S. department stores saw a sales decline from $87.5 billion in 2005 to $60.7 billion in 2015. The demand for online shopping has had a significant effect on the market.
While e-commerce sales are still relatively small, according to eMarketer, online sales are expected to increase 15.8 percent to $452.8 billion by the end of 2017. The leading company, Amazon, now represents close to four percent of all retail sales in the U.S.
With online stores like Amazon, Jet (owned by Wal-Mart Stores), and even online food delivery systems like HelloFresh, the consumer market is clearly heading towards e-commerce. Any product can be delivered to your doorstep with a mouseclick.
With such a drastic change in direction, brick-and-mortar stores are losing sales due to the increased demand for delivered products. Big-name brands like Wal-Mart and Macy’s are coping with falling sales by laying off employees and closing down stores to accommodate budget changes.
The use of mobile e-commerce has also seen a notable trend over the past few years. A BI Intelligence report described the rise of mobile e-commerce to soon consume 45 percent of the e-commerce market by 2020. 'Fast and convenient' is the current theme in the consumer market and brick-and-mortar stores are just not cutting it.
Retailers capitalizing on online conversions are currently ahead of the game. For those still wary of the internet, it’s time to get over the “fear of the unknown” because digital is the newest landscape, and it’s not going anywhere.
adaptation to this new reality is paramount. As e-commerce continues to rise, retail sectors will ultimately continue to see a steady decline if something in the space doesn’t change.
Aash M. Shah, CFA is a senior portfolio manager at Summit Global Investments, an SEC registered investment adviser specializing in low volatility investment strategies. Learn more at www.summitglobalinvestments.com.
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