Brick and mortar retail
In-store retail sales in the US peaked in 2015 and have been tailing off since. The pandemic accelerated the adoption of e-commerce in the US from 11.3% of retail sales at the end of 2019 to 16.1% in the second quarter of 2020, the largest quarterly jump in history.
We expect the adoption of drone-assisted delivery in the next few years will dramatically lower shipping costs, driving even more consumer purchases online.
As a result, ARK estimates that US e-commerce will grow from $820bn in 2019 to $2.7trn in 2025, pushing non-e-commerce retail down from $4.6trn to $3.9trn, a level last seen in the late 1990s.
While some companies will transition successfully to e-commerce, we expect more bankruptcies during the next five-to-ten years as not every business will survive or make the shift quickly enough. This brick-and-mortar retail apocalypse will likely continue to impact both equity and fixed income holders.
We estimate $2trn in enterprise value is at risk in the public equity markets across retail categories with heavy real estate footprints, such as luxury goods, footwear and accessories, apparel retail, specialty retail, department stores, and apparel manufacturing.
Retail-related fixed income investments also could suffer as retail real estate values decline.