Physical retail turns around post-COVID, time to fish for winners
Background
COVID has brought significant change within the retail industry, many stores have been ordered to shut down, especially those within US. This has led to many bankruptcies, both private and public. Those with high fixed costs and subpar balance sheet went under relatively quickly (Tailored Brands, J.C. Penny, Guitar Center, Ascena Retail etc.), a quick comparison between specialty retailers and general retailers will show that general retailers are much more resilient under tough conditions.
Online Shopping
The Online segment of almost most companies increased significantly, interestingly though, traditional retailers like Kohl’s, Target, and Nike grew their online segment faster than e-commerce companies like Amazon, effectively gaining share in the online market.
Structural Change in Physical Retail
- Location intelligence: Software that tracks consumer preference and demographics become increasingly important as inventory and product curation controls can minimize cost in a short-handed physical retail environment.
- Depth vs. Breadth: Depth may become more important than breadth to tailor to individual needs and create emotional attachments. Multi-channel approach will allow brands to maximize revenue while limiting SKUs and shelf space.
- Contactless environment: Sensors that can take cues from hand gestures, voice, and reflections will be utilized for a contact-minimized environment.
- Distribution centers: Key to deliver goods at maximum efficiency, limiting idle inventory and the need to discount.
- Advertising: Small brands may be aggressive with online advertising as well as pop up stores. Store-in-store may be a preferred format for brands.
- Delivery: Drones may be utilized for last-mile, and LTL may be the preferred method for most retailers as more distribution centers come online and inventory controls continue to tighten.
- Off-mall: Most enticing retail format if the location is planned carefully with complementary offerings (food, massage, haircut, theaters).
Industries to Benefit
RFID: E-ink (8069)
Drone: Parrot (PARRO), Zhongyang (6668)
E-commerce: Rakuten (4755)
Sensing (mmWave/VCSEL/IR LED/Mic): JMicron (4925), Win Semi (3105), Knowles (KN), Zilltek (6679)
LTL: XPO Logistics (XPO), Saia (SAIA)
Off-mall: Kohl’s (KSS)
Conclusion
Retail has suffered its largest shock, and many changes have been accelerated. I think it is one of the most interesting industries to be a part of right now. Unforeseen demand will likely surge for multiple industry verticals, aided by a permanent change in consumer behaviors.
Water Bear Investing 