80,000 retail stores are expected to close in the next 5 years, leaving room to reinvent the ones that remain

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UBS analysts forecast 80,000 store closures over the next five years as the acceleration of COVID-19 in e-commerce forces retailers to reduce their fleet of physical locations. That will bring the total number of stores in the US to 797,000, down from 878,000. UBS also forecasts that e-commerce penetration will reach 27% by 2026, up from 18% in 2020.

Still, this does not diminish the importance of stores, which have become key parts of the sales process for retailers, including Target Corp. TGT, + 0.12% and Dick’s Sporting Goods Inc. DKS, + 1.30%, which are using their stores. for merchandise delivery services such as curbside pickup and item dispatch from stores. See: Dick’s Sporting Goods launches the store concept as competition intensifies with Nike and other big brands. Also: Aim to spend $ 4 billion annually over the next several years to build a 2020 ‘record’ “However, our analysis also assumes that retailers evolve and adapt their store formats to be the centerpiece of interaction with consumers, including online order fulfillment, ”analysts led by Michael Lasser wrote in the report. UBS says that in-store e-commerce compliance will rise to 20% in 2026 from 10% in 2020. “Overall, under this framework, every 100 basis point increase in online penetration results in equivalent sales of 8,000 stores moving to e-commerce, ”the report said. “In the future, we believe that retailers better positioned to adapt their store or leveraged formats to categories with fewer disruptions from online change will be better positioned.” UBS says clothing, consumer electronics and home furnishings retailers could see the most stores closed, with clothing closing the most with 21,000. Names most poised to reposition include Walmart Inc. WMT, + 0.24%, Costco Wholesale Corp. COS, + 0.17%, discount retailer TJX Cos. TJX, + 0.35%, DIY retailers Home Depot Inc. HD, -0.27% and Lowe’s Cos. LOW, -0.13% and Advance Auto Parts Inc. AAP, -1.11%, according to UBS. Retail was hit hard by the pandemic, with many stores forced to close for a period and reduce hours of operation to stop the spread and invest in new technology and disinfection measures to keep staff and customers safe. The pressure forced several distressed retailers to file for bankruptcy, and the retail category is expected to be plagued with bankruptcy filings in 2021. Plus: ‘Plexiglass will be around for a while’ – Shoppers still worried about COVID but coming back to stores But UBS says more stores could have closed. “Importantly, we believe the retail landscape was supported by significant government stimulus and a shift from wallet to service goods. However, we believe these trends are temporary, ”the analysts said. UBS notes that retail loan delinquency rates increased to 11% in February 2020 compared to 4% the previous year. “As the consumer context normalizes, we believe the challenges facing undifferentiated retailers will become more apparent,” the analysts said. One solution for the remaining stores is to equip the locations with features that generate interest and traffic. Dick’s, for example, has a concept store that has a climbing wall, a batting cage, and other attractions. “With so many retail stores available recently, I think we will see a new wave of retailers emerge, as well as legacy retailers completely reorganize,” said Grant Owens, chief strategy officer for Critical Mass, a digital marketing and experience design agency. “Many of them will use physical spaces in very new ways. For example, we will see formats that are deliberately linked to the online shopping journey, while the physical environment is used for the priority parts of the journey. “Don’t Miss: Smoothies and Salads – Kroger says these 4 items account for 28% of your produce sales Much of the desire for convenience and other shopping habits that have developed during COVID-19 is likely to persist even after the pandemic is over. you need to take that into account, perhaps with a bit of trial and error to find the best formula. “So the next 12 months could represent a very creatively driven era of retail experiences,” said Owens. lots of experimentation. “The SPDR S&P Retail XRT exchange traded fund, + 0.41% has recovered 41.3% year-to-date, while the S&P 500 SPX Index, + 0.11% has gained 8.7% .