New wave of e-commerce disruption could close 45,000 retail stores in next 5 years, analysts say

 UBS analysts suggest that e-commerce isn't done upending brick-and-mortar retail just yet

A decade ago, Amazon.com was all the worry in the retail industry - and retailers, to some degree, adapted. But UBS analysts have suggested that e-commerce isn't done with the brick-and-mortar store just yet.

The analysts predict that around 45,000 retail stores will close over the next five years, as online shopping and larger players like Chinese discount-shopping site Temu and Singapore-based fast-fashion giant Shein become more prevalent.

The closures would play into the hands of larger, deeper-pocketed retailers like Walmart Inc. (WMT) and Target Corp. (TGT) and put smaller ones at greater risk, they said. Some 16,500 of those store closures could come out of the "softlines" retail industry, which sells things like clothing and bedsheets. Department stores and specialty retailers could be hit particularly hard.

"Our basic premise is that as e-commerce penetration continues to rise,more of those places of exchange will take place at a consumer's home," the UBS analysts wrote in a note dated Monday. "Thus, there will just be less need for stores."

"In fact," they added, "it's likely that the next wave of e-commerce penetration is pushed in part by third-party players such as Temu, Shein and others that don't even have a physical presence in the U.S."

They noted that rising rents, wages and other costs, along with further investments in digital-ordering capacity, would accelerate closures, adding that a lack of willingness by banks to lend to retailers - a measure that worsened in the first quarter - could be a precursor to more closures.

The forecast arrives as more people have returned to in-store shopping as pandemic-related restrictions in the U.S. have lifted virtually entirely. But retailers are still trying to find a way through weaker demand for items like clothing, which has suffered as higher prices for necessities like food and shelter eat up a bigger share of consumer budgets.

Clothing retailer Express Inc. (EXPRQ) on Monday said it had filed for chapter 11 bankruptcy protection and planned to close dozens of stores. Bed Bath & Beyond Inc. closed all of its physical stores in the wake of its own bankruptcy last year, although it still exists online following its acquisition by Overstock.com, now Beyond Inc. (BYON) And department-store chain Macy's Inc. (M) in February said it would close 150 stores in an effort to protect its bottom line and create a "more modern" business.

The UBS analysts said that other department stores, like Nordstrom Inc. (JWN) and Kohl's Corp. (KSS), are also vulnerable. But they were more upbeat on companies like running-shoe maker On Running (ONON) and Deckers Outdoor Corp. (DECK), which makes the shoe brands Ugg, Hoka and Teva - citing how they tend to sell products directly to consumers without going through physical stores.

As of the third quarter of last year, there were 958,533 retail stores in the U.S., according to UBS. As of 2021, 58% of retail stores were run by firms with less than 20 employees, while 69% of stores were operated by chains with less than 500 employees, the analysts said.

They estimated that for every 1% increase in online penetration in the U.S., around 8,000 retail stores would need to shut down. The analysts noted that stores would still be relevant for retailers - albeit for pickups and deliveries for online orders.

"Our analysis assumes that stores remain an important part of the overall retail ecosystem for retailers and consumers," they wrote. "In the simplest terms, store[s] serve as hubs of fulfillment and support distribution logistics. This is increasingly more important as consumers are becoming more demanding for convenience or immediate deliveries."

https://www.morningstar.com/news/marketwatch/20240424970/a-new-wave-of-e-commerce-disruption-could-close-45000-retail-stores-over-the-next-five-years-analysts-say