Retailers - especially specialty mall-based ones - need to adopt an omni-channel model before it's too late, Fitch Ratings warned in a new report on Wednesday.
"Department stores and specialty apparel retailers are being battered by online incursion and changing consumer relationships to fashion," Fitch analysts said in the report.
Fitch predicted that 70% of all retail sales will be generated in stores by 2020, still the majority, but down sharply from the 80% today.
The retail industry's long list of woes include dwindling mall traffic, still bloated store bases, heightened competition from e-commerce players such as Amazon (AMZN) - Get Amazon.com, Inc. Report and rising rent costs. Plus, rising interest rates are expected to tack on an additional headache for retailers.
Just in the past week, Wall Street saw bankruptcy filings from sporting goods retailer Gander Mountain, RadioShack successor General Wireless Operations, everyday value price department store operator Gordmans Stores (GMAN) - Get Goldman Sachs Motif Manufacturing Revolution ETF Report and appliances, electronics and furniture retailer HHGregg (HGG) . On Wednesday, children's apparel retailer Gymboree cautioned it was running low on cash and may not survive.
"The rise of off-price and fast fashion retailers, lack of a strong fashion cycle and fundamental changes to the way consumers contemplate their discretionary budgets have eroded many apparel retailers' competitive footholds," Fitch said.
For department store giants like Macy's (M) - Get Macy's Inc Report and J.C. Penney (JCP) - Get J. C. Penney Company, Inc. Report , which are being forced to close stores due to declining mall traffic, to gain back their competitive edge over discount retailers like TJX Companies' TJ Maxx (TJX) - Get TJX Companies Inc Report , they will really need to focus on leveraging investments in omni-channel models, according to Fitch.
"Consumers still want the option of an in-store experience, but retailers will have to rethink how they're using their square footage," said David Silverman, Fitch's senior director of U.S. Corporates.
Macy's plans to shutter 100 stores by early spring, while J.C. Penney is set to close 130 to 140 locations by the second quarter. Sears Holdings Corp. (SHLD) also continues to close stores in droves.
Still, there may be a sliver of hope in all this for Macy's and J.C. Penney. In malls alone, department stores have an advantage over specialty retailers as they are easier to access, pointed out Fitch. So, even as mall traffic falls, department stores will likely be the last to go under.
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