Consumer sales are slowing, but UBS says it will boost the revival of brick and mortar stores as shoppers want to ‘try before they buy’
The number of people shopping online is falling—but bad news for consumer spending could lead to the return of brick-and-mortar stores because of their one-size-fits-all benefits, according to analysts at UBS.
Through a survey of 1,000 consumers in the US, the bank found that the percentage of people buying things like clothing and apparel online fell 3% year-on-year and was down four years ago. The survey results are a major change from the general belief, and the bank’s previous estimate, that online sales will continue to take market share from clothing and apparel retailers who primarily sell their products in physical stores.
Now, the bank is changing its approach. In a note on Thursday, UBS analysts said a reduction in online sales could be a boon for retailers who sell primarily in brick-and-mortar stores.
“The market continues to see the migration to the internet as a major disruption for Softline companies as most of them derive their sales from brick and mortar stores. We are thinking of reducing the growth rates of online sales by more than [next 12 months] it will change the story,” analysts wrote.
The about-face from UBS comes after consumer spending was the weakest from April to May and rose 0.1% month-on-month, according to the Commerce Department. In May, in-store sales of clothing and accessories rose 0.9%, while overall online sales rose 0.8%.
Fueling UBS’s forecast is evidence that consumers are once again seeing one clear advantage of brick-and-mortar clothing and apparel stores: they let customers “try before they buy.”
The bank found that 47% of consumers, 3% more than last year, said the reason they don’t buy online is because they want to try products before buying. Even when consumers first search for a product online, 28% of the time they buy a product in a physical store, UBS found.
“Internet retailers have not found a way to overcome this objection to online shopping,” the analysts wrote. “This is a key reason why online penetration will stop growing, in our view.”
Indeed, the disconnect between goods sold online and the real world continues to be a challenge for online retailers in the form of growing returns that cost sellers money, create logistical problems, and pile up in landfills.
Some, particularly brick-and-mortar retailers, are already starting to see a resurgence, lending to UBS analysts’ predictions. Abercrombie & Fitch reported its best ever first quarter last month with net sales jumping 22% compared to the same period last year. The company’s stock growth has overtaken Nvidia, which is now the world’s most valuable company in 2023, and is up 374% year-over-year.
The trend of consumers buying more at physical stores than online could also help boost shares of other mall favorites, American Eagle Outfitters, and Boot Barn, because investors have been ignoring them because of the perceived threat of online sales, which may be small. more threatening than expected, analysts wrote.
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