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UBS:75,000 retail stores need to close by 2026 as e-commerce continues to thrive


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UBS:75,000 retail stores need to close by 2026 as e-commerce continues to thrive

Retailers will have to close around 75,000 stores by 2026 as online sales continue to rise, UBS analysts wrote in an April 9 note.

The estimation is based on the assumption that online penetration in retail rises to 25% by 2026, according to the analysts. As of the third quarter of 2018, e-commerce sales reached 16% of total retail sales excluding food, compared to the 8% reported in 2004, according to UBS.

Online retailers have continued to thrive as more consumers shop online. For example, Inc.'s revenue from its North America division was $141.37 billion for fiscal 2018, an equivalent to the combined sales of about 30,000 retail stores, according to the analysts. Households have also increased their online spending to $5,200 in 2018 from $3,500 in 2013.

"Looking forward, we believe that store rationalization needs to accelerate meaningfully as online penetration continues to rise," the analysts wrote.

Clothing and apparel, home furnishing, consumer electronics, sporting goods, and office supplies retailers are expected to close a combined 15% to 25% of stores as a result of the "rapidly rising online penetration coupled with sluggish industry trends," the analysts said.

The report added that the 75,000 store closures will include about 20,700 clothing and clothing accessories stores, 9,800 consumer electronics stores, 8,400 home furnishing stores, and 5,900 sporting goods stores.

Many clothing and apparel retailers including J. C. Penney Co. Inc., The Gap Inc., and Macy's Inc. have announced plans to close several stores in 2019 as part of their efforts to consolidate their store footprint.

The less vulnerable categories include home improvement and auto parts, which will only have to close 620 and 60 stores, respectively.

Although auto parts stores have only increased by 5% since the fourth quarter of 2007, UBS analysts noted that the category has been shielded from the disruption of e-commerce primarily because of the "immediacy of need, rising parts complexity, and the importance of service." UBS expects these factors to continue to contribute to store count growth.

While sales in the auto part category for the third-quarter of 2018 dropped to $90.4 billion from its highest level at $90.5 billion in the first-quarter of 2016, UBS analysts are optimistic that positive industry trends will continue.

"We think that favorable sector dynamics, including lower gas prices, an aging car population, rising parts complexity, and higher miles driven should continue to support positive trends in the category," the analysts wrote.