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With the holiday season upon us, the retail industry once again takes center stage. Let’s look at two key trends that have changed the retail landscape: technology’s evolution and millennials’ preferences.
The internet has been one of the most disruptive threats to retailers in many years as more consumers shift their spending online. Most internet-only retailers can offer cheaper prices by avoiding the costs associated with physical locations. But brick-and-mortar stores are staying competitive with websites that offer a seamless shopping experience, in-store pickup and free shipping on returns.
For example, many retailers offer additional products online that aren’t available in physical stores. And other items – such as food, hardware, health and beauty, and auto parts – by definition are harder to buy online.
Born between 1980 and 2000, millennials make up roughly 25% of the U.S. population. They are the highest-educated among all generations, which can translate into greater spending power. As baby boomers retire, their spending power is switching to millennials, who are comfortable with e-commerce and tend to spend more on experiences (travel and dining out) and electronics (smartphones) than on apparel. We believe retailers will need to aggressively invest in technology to cater to this crowd.
A survey by the Urban Land Institute showed two-thirds of millennials visit the mall at least once a month because they see it as a way to enjoy time with friends and family. However, they tend to spend less time shopping as they have typically researched products online beforehand. They also can be fickle, so retailers will need to invest in their stores to keep them fresh, new and exciting, and give them a reason to visit.
We believe that going shopping will continue to be an important aspect of our society – and that stocks in the retail industry still have a place in a diversified stock portfolio. Retailers that offer a wide variety of products online, seamless checkout, an exciting shopping experience, strong customer service in stores and differentiated products should be successful over the longer term, in our view. Talk to your financial advisor today about how retail stocks may fit into your investment portfolio to help you work toward your long-term financial goals.
Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal.