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Avoiding the retail apocalypse

Avoiding the retail apocalypse

09-05-2018 | Insight

A spate of corporate failures amid new expansion for e-commerce is accelerating the ‘retail apocalypse’, says trends investor Jack Neele.

  • Jack  Neele
    Jack
    Neele
    Portfolio Manager

Speed read

  • High-profile collapses and mergers spell doom for the high street
  • Move to shopping online now includes more categories of goods
  • Investors should target e-commerce and omni-channel retailers

The demise in April 2018 of retail chains such as Toys R Us and Maplin Electronics, combined with planned mergers for supermarket groups, has advanced fears of the collapse of the traditional high street. And the problem looks set to get worse as e-commerce trend expands into previously untapped categories of goods and services led by groceries, he says.

“The online revolution began with consumer electronics, books, CDs and those types of products, but has since spread to clothing, apparel-type goods, and has now started to move towards groceries,” says Neele, portfolio manager of the Robeco Global Consumer Trends Equities fund.

“That’s caused some consolidation in groceries, as we’ve seen with some high-profile merger plans, where it’s become more important to gain scale. So, the retail apocalypse has been spreading to more and more categories. And although it is still in the early stages in the grocery business, some of these companies now offer whole meal packages, with the ability to get food in many different ways over the internet. That is now impacting the food retail landscape as well.”

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Less impulse buying

One under-appreciated trend is the demise of impulse buying at the checkout, including ‘pester power’ from children, Neele says. “When you’re in a store you always pass by the chocolates or sweets by the till at the end, and there’s a lot of impulse buying,” he says. “This impulse buying isn’t there when you buy online because there is no immediate gratification from eating your sweets outside the store.”

So, what’s the answer for retailers losing a long-term battle with the internet? Where possible, they should change their business models to join the fray, he says. “Most retailers have anticipated the structural change as people switch from physical stores to online, and are now adopting omni-channel models where they can do both,” he says. “They’ve become better at e-commerce where people can get the same products in the stores or online.”

“Demographics are also changing. Younger people who grew up with the internet are much more comfortable with using it for all things, including sharing a car or renting apartments. Older people have more of a hurdle to overcome because they’re used to doing things in a certain way. So as older people are gradually replaced by millennials, you will see the percentage of people opting for internet shopping getting higher, which is fueling the structural trend.”

Targeting e-commerce

Neele’s fund seeks to take advantage of these changes. “We tend to invest in the companies that are set to benefit from the overall shift to digital, so we own a lot of e-commerce retailers and those with scale. We own a lot of the streaming businesses that are so popular with millennials – there are no more video stores and very few music shops, as it has all become digital.”

“We do though like the branded sports goods retailers which have this omni-channel combination of selling through department stores, their own retail outlets and their own online shops. They are also in categories that lend themselves well to omni-presence, as they have big distribution networks, and these are often small products like training shoes that are easy to deliver.”

“We also have a lot of exposure to luxury goods; if someone is buying a USD 5,000 handbag, then they want to buy it in the store, because it’s more of an experience. In the past you could display your wealth by showing off your possessions, but now it’s more about experiences shared on social media. We therefore have exposure to luxury goods and the travel industry which are more actual experiences than simply buying stuff.”

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