5 Top-Ranked Stocks To Survive The Retail Apocalypse

There seems to be no end in sight to the retail apocalypse. Industry watchers had thought that the phenomenon had peaked last year, with stores closing left, right and center. But several more stores are likely to down shutters over the next few years, giving in to the uninterrupted march of online retailers.

A new report from investment firm UBS (NYSE:UBS) reveals that by 2026, nearly 75,000 stores will shut down. At that point, online sales are expected to account for 25% of all retail sales, per UBS. Currently, they make up around 16% of total sales.

So does the rise of Amazon (NASDAQ:AMZN) and its ilk spell the end for the traditional brick-and-mortar retailers? Several major brands may be feeling the pinch, but many others are coping with innovation and a wider online presence. This is why it makes sense to pick up select retail stocks which are poised to flourish even in the middle of a retail apocalypse.

Online Shift Spells Doom for Brick and Mortar

Several retailers have already announced that they will shutter thousands of stores this year in order to keep pace with changing buyer behavior. For instance, Payless ShoeSource is shutting all of its 2,100 stores in the United States while Gymboree is closing 800 stores.

Additionally, Sears is shuttering 80 locations after closing nearly 1,300 Sears and Kmart stores since 2013. The likes of Gap (NYSE:GPS) have also stated that several stores are likely to close in the near future.

And the primarily reason for these closures is the increasing shift to online shopping. The average U.S. household’s online spend clocking in at $5,200 last year. This is a near 50% jump compared with the figure recorded five years earlier.

Store Closures Likely to Continue

At least 15,000 stores had closed since 2017, per data from UBS. The major sufferers of this trend include Radio Shack, Toys R Us and Mattress Firm and GNC, which have shuttered 1,470, 735 and 700 stores, respectively.

Happily enough, in-store sales rose in 2018, primarily fueled by tax cuts. But UBS thinks those gains will probably be reversed in 2019. With the pace of store productivity improvement likely to fall, store closures may accelerate in the current year, according to UBS analysts.

Flexibility, Innovation Key to Survival

Despite the spate of store closures, some online companies like Casper and Wayfair are opting to open at physical locations. However, these stores will likely function more as showrooms rather than stores with significant inventories.

And this is likely to be the trend for most retailers. Streamlined stores, with lower inventory levels, seem to be the new watchword for the industry. In case buyers want more variety, they’ll have to shop online.

The likes of Target (NYSE:TGT) and Ikea are reducing stores sizes in order to attract urban shoppers for whom time is at a premium. Early in April, Sears said it will launch a few Sears Home and Life stores, which are only 10% the size of their traditional retail formats.

Our Choices

Smaller store size and lower inventory levels are just some of the strategies being adopted by embattled brick-and-mortar retailers. Some are choosing to reposition themselves in buyers’ minds, others are changing store formats to appeal to new shoppers.

And many traditional retailers are looking for a sweet spot between online and offline models, choosing even to tie up with behemoths like Amazon. This is why it makes sense to invest in retail stocks that have what it takes to survive a trying time for the industry. However, picking winning stocks may be difficult.

This is where our Zacks Investment Research

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Written By: Zacks Investment Research