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  • The Seville Reporters

In Focus: Retail in the 2020s

There are a lot of lessons to be learned in failure, but the retail industry hasn't learned anything in 15 years.

For more than a decade active investors and stock watchers have witnessed the decline of physical retailers and the decline of the shopping mall. Retail CEOs and insiders have had a front row seat to watch the decline. Yet with all the data they have access too, with all of the store closings, and with the falling stock prices and company valuations, it appears they've learned nothing.

Physical Retail is Dead.

That's strong, but it's true, sort of. Physical retail as anyone over 40 years old remembers it is dead. It will come back one day, but not for a very long time. Right now physical retailers need to adjust or they will find themselves in the retailer graveyard with Kmart, Sears, Caldor, Zayre's, Alexander's, Woolworth, and a list of others.

During the week retailers released their holiday sales numbers and it wasn't pretty. JC Penny (JCP) reported a decline in comp sales of 7.5%, Kohl's (KSS) reported their comp sales fell 0.2%, Macy's (M) reported their comps fell 0.6%, L Brands (LB), home of Victoria Secrets reported a comp sales decline of 3%. Urban Outfitters (URBN) reported that total company sales rose 2.9% year-over-year, but comp sales fell 1%, the stock declined almost 9% in after hours trading following the news.

If you're one of the investors who feel that the numbers and declines aren't bad, or as one analysts stated, "Better than expected," I would ask you to consider those numbers in our current environment. The stock market ended 2019 hitting all time highs, a phase one trade deal with China is in place, and unemployment is at decade lows, yet retailers had a tough November and December. In simpler context, the wind was in their sails, and they went nowhere.

But it wasn't all bad in retail. U.S. Today reported that U.S. consumers spent more online in the weeks leading up to Christmas this year, and that online sales increased by 18.8% setting a record.

It appears obvious to me that retailers need to get less physical and more virtual.

The Next Economic Gut Check

The next economic shake up or down turn will likely come from the retail industry. Retailers will need to take a step back in order to take two steps forward.

Retailers will sooner or later realize that they have to close stores, and not just the underperforming stores, they need to go beyond that. For example Macy's operates 867 stores, and has plans to close 30 stores. 30 stores is far too little and Macy's should consider closing 200 to 400 stores. The other struggling companies should follow suit and close whatever underperforming stores they operate plus some.

This is where the economic gut check will likely come in. There are close to 5 million people employed in the retail industry according to the Bureau of Labor Statistics. A mass number of store closings would put a large group of people out of work. But the reality is it's going to happen anyway. The 30 stores Macy's plans to close this year will likely be followed by another 30 next year, and another 30 the year after. One dedicated year to mass closings will rip the band-aid off of the problem, and allow all parties, retailers and employees to move forward.

Next, these retailers should do more to push their shoppers, especially the loyal ones to their respective websites. It sounds simple and a bit redundant, but whenever I see an advertisement from a retailer, the advertisement still pushes people to the store. That needs to stop immediately. If a company like Macy's or Nordstroms is going to advertise to TV watchers or YouTube viewers, who are viewing with a smart phone in hand or very close by, the advertisement needs to instruct consumers to check out our site right now on your phone and see the amazing deals we have, RIGHT NOW!

For the physical stores still standing, these need to be showrooms, almost art exhibits, where viewers can get a sense of what's available online. Customers who can't find their size, or the color of the product they wanted in store should be given incentive to order it online while in the store, like a coupon code they can scan if they order what they're looking for while in the store. Physical stores can also serve as pickup and return locations for online deliveries.

Lastly, during the transformation, retailers need to give an extremely conservative outlook to Wall Street, and most importantly, retailers will need to prioritize customer experience online and off over revenue. It may sound impossible, but think of an Apple Store. I can buy a MacBook, iPhone, or iPad anywhere, yet I always go to the Apple Store. Apple has made the act of taking my hard earned money an experience for me, that's genius.

The Trend is Your Friend

Anyone learning to trade the markets using technicals hears early and often that the trend is your friend. It's a simple way of telling traders, if the markets are going up then go long, if the markets are going down, then short. Always trade with the trend and ride the trend to a profitable trade. Year after year online sales continue to increase, the trend is online. Retailers who operate physical stores need to embrace the trend or end up in the retail graveyard.

If retailers wise up and do what is needed, the ProShares Decline of the Retail Store ETF (EMTY) will be the investment play. The ETF's objective is to appreciate in value as brick-and-mortar retail locations decline. Keep an eye on ETMY during the decade.

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