The number of people shopping online is falling, but bad news on consumer spending could lead to the return of brick-and-mortar stores due to their sheer advantage, according to UBS analysts.
In a survey of 1,000 U.S. consumers, the bank found that the percentage of people buying things like clothing and apparel online fell 3% from last year and was down from each of the last four years. The survey results stand in stark contrast to popular belief and the bank’s own previous assessments that online sales will continue to take market share from apparel and apparel retailers that primarily sell their products in brick-and-mortar stores.
Now the bank is changing its tune. On Thursday, UBS analysts said the slowdown in online sales could be a boon for retailers that primarily sell goods in brick-and-mortar stores.
“The market continues to view online migration as a potentially major disruptive force for Softline companies as most of them generate the majority of their sales from brick-and-mortar stores. We believe that the growth rate of online sales will slow over the next [next 12 months] will change this picture,” analysts write.
UBS’s reversal came after consumer spending was little changed from April to May, rising 0.1% month on month, according to the Commerce Department. In May, in-store apparel and accessories sales rose 0.9%, while overall online sales rose 0.8%.
UBS’s forecast is supported by consumers again recognizing one distinct advantage of brick-and-mortar clothing and apparel stores: they allow shoppers to “try before they buy.”
The bank found that 47% of consumers, up 3% from last year, said the reason they didn’t shop online was because they wanted to try on products before purchasing. According to UBS, even when consumers start searching for a product online, 28% of the time they buy it in a brick-and-mortar store.
“Online merchants have not found a way to overcome this objection to online shopping,” the analysts wrote. “In our opinion, this is a key reason why online service penetration will stop growing.”
Indeed, the gap between goods sold online and the real world continues to be a problem for online retailers in the form of a growing influx of returns that cost retailers money, create logistical problems and accumulate in landfills.
Some retailers, primarily brick-and-mortar, have already begun to see a resurgence, confirming UBS analysts’ forecasts. Abercrombie & Fitch reported its best-ever first quarter last month, with net sales up 22% year-over-year. In 2023, the company’s stock growth has surpassed Nvidia, which is now the world’s most valuable company, up 374% year-over-year.
The trend of consumers buying more often in brick-and-mortar stores than online could also fuel a surge in shares of another mall favorite, American Eagle Outfitters, as well as Boot Barn as investors undervalued them due to the perceived threat of online sales. which may be less. ominously than expected, analysts write.