With sales slipping, traditional retailers will have to develop their online offerings -- something that will put pressure on already thin margins.
So far, so bad. Early indications of how retailers performed over the holiday period are anything but encouraging.
Macy's Inc. and Kohl's Corp. posted disappointing November and December sales on Jan. 4 and cut their outlook for full-year earnings.
What links these retailers together? They're all being hurt by two key shifts in buying habits that are gathering pace.
Consumer appetite for clothing is dwindling as people spend more on their homes, consumer electronics, beauty, and experiences like days away and meals out.
Revenue at U.S. home-improvement and beauty stores rose in 2016. By contrast, demand for women's clothing shrank, as did department store sales, according to First Data, a payment processing company.
Worryingly for Macy's, demand for accessories such handbags and watches is deteriorating. At a time of year when people look for gifts, this category should have performed well. The fact it didn't worsened the pain from the apparel slump.
Demand at bricks-and-mortar stores has also taken another lurch down as more customers go online. Footfall at U.S. stores in December was 7% down from the year-earlier period, according to Prodco, which tracks shopper traffic.
Next, a clothing chain in Britain, said physical stores under-performed its online operation. CEO Simon Wolfson says he expects those retailers without store estates will have done better over the holidays.
There could be worse to come. Amazon.com Inc. has quietly been building its clothing business, and its perseverance could start to pay off in 2017. This growth could be expedited if Amazon succeeds in acquiring bankrupt retailer American Apparel Inc.
For bricks-and-mortar retailers, all this adds up to more store closings.
Stores are already being shuttered -- Macy's plans to eliminate 100.
But if the pattern we saw over the holiday period continues, these plans may not go far enough. Expect many more to shut in 2017.
With sales slipping, traditional retailers will have to develop their online offerings -- something that will put pressure on already thin margins. Macy's will pump some of the savings from cost cutting plan into its e-commerce business.
But online will be no panacea either. These operations bring their own additional costs -- customers are often offered free delivery, while processing returned goods is costly.
2017 is shaping up to be brutal for retailers -- and that's before worries about Brexit or Donald Trump prompt consumers to start closing their wallets.
By Andrea Felsted