Setting the record straight on the state of retail and store closures

UBS report findings ignore key industry trends

It’s no secret that the retail industry is evolving rapidly due to shifting consumer preferences and new technologies. But the truth is, retail has always been in a constant state of change, and throughout all the industry’s twists and turns over the past several decades, retailers have evolved and thrived.

It’s important to look at the big picture. Retail contributes $2.6 trillion to annual GDP and drives the nation’s economy, but for years, we’ve seen sensationalist headlines about a so-called “retail apocalypse.” The latest wave of coverage was sparked by a UBS report projecting that retailers must close 75,000 stores by 2026 due to ecommerce.

But as Greg Buzek, a retail analyst for more than two decades and founder and president of IHL Group, said, “not so fast, my friends.” IHL Group took a hard look at the math and research behind the report and found it painted a misleading picture of the industry.

Government data doesn’t tell the real story.

“When one relies almost exclusively on the US Retail Census data, one assumes that the government has kept up in their measurement criteria to handle all aspects of retail trade (online and stores),” Buzek said. “They are really struggling with how to deal with bricks and mortar retailers and the growth of the online business. Their systems have not kept up with the rapid pace of change in retail in all facets.”

Online and in-store, it’s all retail.

Successful retailers are adapting for the omnichannel future and embracing both online and in-store, not one or the other. Even once pureplay online retailers such as Amazon, Warby Parker, Birchbox, Casper, Wayfair and more are opening stores, realizing it’s critical to deliver customers the blended experience they want. In fact, it’s estimated that once-online-only brands will open 850 brick-and-mortar stores over the next five years.

The UBS report is based on a black and white perspective. “It simply assumes a scarcity mentality,” Buzek explains. “Along these lines, there is no room for new companies to come in or pure-play online retailers to open stores in those sectors … The math only looks at what must close … It is very rare where a well-run business, that has adapted to changes in consumer trends, invested in technologies, and has a reasonable balance sheet has closed a sizable number of stores. So, the study’s approach assumes the worst and excludes the positive parts of the market.”

The report ignores ecommerce trends.

“The assumption here in the math is that all ecommerce sales and growth is for delivery of goods only,” Buzek said. “It excludes “buy-online-pickup-instore” (BOPIS) and click-and-collect, which are the two areas of ecommerce that are growing the most by far (five times the speed of overall ecommerce). To do these, a retailer needs stores. We’ve all seen how delivery is harder logistically and secure delivery is more difficult due to package theft. Excluding this trend in the analysis is a huge problem for me when the conclusions are so sensational.”

The math is oversimplified.

Again, the future is omnichannel. And let’s remember that close to 90 percent of all shopping is done in stores and online sales only make up about 10 percent of all retail sales. Nevertheless, it appears UBS made some major assumptions that ignore this reality. Buzek points out that the UBS store closure projection was based on the assumption that ecommerce will represent 75 percent of all retail growth by 2026, and that means 75,000 retail stores will close as a result. “By simplifying that if online sales go up, store sales must go down, thus stores must close creates a headline that is very misleading,” Buzek said.

Shopping isn’t going to disappear, and neither are stores.

The report includes a few more wild assumptions, including that the grocery sector will see a 400 percent increase in online sales for delivery, going from $13 billion in online sales to nearly $80 billion for delivery. “This is simply not reasonable in an analysis with the growth for this sector is primarily from pickup in stores,” Buzek said. “Simply, the stores need to be there.”

IHL Group predicts that online will be 25 percent of the total retail market by 2021, but 80 percent of all of retail will still have a store fulfillment component. Along those same lines, a recent report by NRF and Forrester Research found 54 percent of surveyed retailers plan to open new stores in 2019, and 36 percent of those surveyed will have a higher store count than in 2018. Only 7 percent of respondents said their net store count would decrease. “Retail is still very much about location, location, location to consumers,” Buzek said. “Those stores may take on more of an ecommerce fulfillment role and radically change formats from today, but their advantage is their proximity to the consumers they serve.”

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