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Retail Therapy

March 6, 2024 | Posted in: Insights, Investing, Wealth Strategies

My March 2023 blog, Retail Apocalypse-Not, poked fun at arrogant bankers and Wall Street analysts because they got it totally wrong with respect to the outlook for traditional retailing. As you will recall, the conventional wisdom from about 2015 through the end of the pandemic was that most retailers would be toast because they would be destroyed by ecommerce. My 2023 blog provided a number of statistics demonstrating the strength of bricks and mortar retail and those trends have only become more pronounced in the past year. Ecommerce sales rose from 10.6% of total retail sales in 2019 to a peak of 16.5% during the pandemic before leveling off at 14.5% and 15.5% during 2022 and 2023, respectively. Those statistics are very surprising to many because they have accepted the myth that ecommerce is predominant. The reality is that retailers have discovered that ecommerce is basically unprofitable leading many digitally native companies to open stores. For example, Allbirds had 59 stores as of the middle of 2023 and Warby Parker has been even more aggressive opening 223 locations. Due to the negative mentality regarding bricks and mortar, new construction has been at very low levels since 2010 resulting in a record low retail vacancy rate in the fourth quarter of 2023. Given the lack of available retail space, rents are rising rapidly and are at or above pre-Covid levels in many markets. Similarly, despite gloom and doom headlines regarding the prospects for major urban areas, foot traffic is approaching 2019 levels in many urban corridors. And once again defying conventional wisdom, top tier malls in affluent areas continue to enjoy very strong sales. Perhaps the most persuasive indicator of the value of physical presence is the fact that Gucci and Prada recently purchased prime locations on 5th Avenue in New York valued at a combined total of $2 billion and luxury brand retailer LVMH spent $2.6 billion in 2023 on trophy properties in London, Paris and other major cities.

To be fair, second and third tier malls still face closure and “tired” brands continue to undergo bankruptcy. However, I believe those trends are emblematic of the rough and tumble nature of capitalism rather than indicative of the health of retailing.