The variety of internet buyers is declining – however the bad news for consumer spending may lead to a comeback of brick-and-mortar retail, in line with analysts at UBS, because it has a singular market advantage.
Through a survey of a thousand consumers within the U.S., the bank found that the share of people that buy things online, equivalent to clothing and apparel, fell 3% year-over-year and was declining in comparison with the past 4 years. The survey results represent a big departure from the overall opinion and the bank’s previous assessment that online sales would proceed to take market share from clothing and apparel retailers that primarily sell their products in brick-and-mortar stores.
Now the bank is changing its tone. In a note on Thursday, UBS analysts claimed that the decline in online sales might be a boon for retailers that sell primarily in brick-and-mortar stores.
“The market continues to see online migration as a potentially major disruptive force for softline companies, as most of them generate a large portion of their sales in brick-and-mortar stores. We believe that online sales growth rates will slow down over the next few years. [next 12 months] will change that narrative,” the analysts wrote.
UBS’s reversal comes after consumer spending in April-May was little modified from the previous month, rising just 0.1 percent, in line with the Commerce Department. In May, store sales of clothes and accessories rose 0.9 percent, while overall online sales rose 0.8 percent.
UBS’s prediction is supported by evidence that buyers are once more recognizing the clear advantage of brick-and-mortar outfitters: they provide customers the chance to “try on” products before they buy.
The bank found that 47 percent of consumers — up 3 percent from the previous 12 months — said they desired to try products on before buying them as a reason for not shopping online. Even when consumers seek for a product online, they buy it in a physical store 28 percent of the time, UBS found.
“Online retailers have not yet found a way to overcome this objection to online shopping,” the analysts wrote. “We believe this is a key reason why online penetration will not continue to increase.”
In fact, the disconnect between goods sold online and the actual world continues to pose a challenge for online retailers in the shape of a growing flood of returns that cost sellers money, create logistical problems and find yourself in landfills.
Some brick-and-mortar retailers are already seeing a rebound, confirming UBS analysts’ forecast. Abercrombie & Fitch reported its best first quarter yet last month, with net sales up 22% from the identical period last 12 months. The company’s stock growth outpaced that of Nvidia, which will likely be the world’s most precious company in 2023, and is up 374% year-over-year.
The trend of consumers shopping in-store more often than online might also be contributing to the rise in shares of one other mall favorite, American Eagle Outfitters, in addition to Boot Barn, as investors have undervalued them attributable to the perceived threat of online sales, which could also be less threatening than expected, the analysts wrote.
