The Retail Apocalypse Will Continue For At Least 2 More YearssteemCreated with Sketch.

in LeoFinance •  5 months ago 


It would be an understatement to say that 2019 was a tough year for physical retailers. The number of store closures reached an all time high. This is causing major problems throughout the retail and commercial real estate sectors. Unfortunately, there is no end in sight.

This year is not the worst. There is still more carnage ahead. In the United States, there is an estimated 30% of excess retail square footage that is going to need to be re-purposed. This means a lot more bad news.

Initial reports in from the holiday shopping season only confirm what is taking place. While retail sales were up across the board, online sales outpaced the totals. This means, once again, it is garnering a larger portion of the total retail market.

The past 5 years saw this trend become firmly entrenched. It is now an industry of those who are excelling with their online offerings versus the rest who are facing demise. Department stores are some of the worst performers in the segment as they have a tough time attracting the younger shoppers.

Much of the carnage became evident when the total amount of online crossed 10% of the total sales. With the expectation of doubling over the next decade, the impact felt is going to be horrific.

What is scary is that these estimates could be too low. During the holiday shopping season, online sales accounts for 14% of the purchases. If this number held up on a yearly basis, consistently, we would likely see an acceleration of the closures that are already in motion. There are a number of firms that are just hanging on trying to restructure, reorganize, and switch to an online model. Unfortunately, for the likes of stores like Macy's, it is proving to be very difficult.

Amazon and Wal-Mart are the two leading retailers. Obviously, the former started as an online presence. The later, while looking like the prey a few years ago, did well to transition towards technology. Online sales for Wal-Mart are increasing at a nice rate, year over year, while they are moving towards automation in their stores.

This is what is going to radically alter the shopping landscape. Amazon seeks to make the shopping experience, from ordering to delivery, completely automated. The goal is to eliminate as many people from the process as possible.

Wal-Mart, while taking a slightly different approach, is not far behind in their goals.

However the situation plays out with these two companies, the bottom line is malls and retail shopping establishments are going to suffer greatly. REITs holding a lot of commercial real estate might find their portfolios lagging substantially.

Ultimately, the next couple years are going to be difficult for these entities. The nature of retail is changing radically and they are caught in an old model.

Perhaps all that real estate will be reused for climate controlled agriculture.

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