With the rapid growth of e-commerce and shifting consumer shopping habits, investors can capture a new opportunity in the retail segment with targeted ETF plays.
ProShares recently rolled out the ProShares Decline of the Retail Store ETF (NYSEArca: EMTY) and ProShares Long Online/Short Stores ETF (NYSE Arca: CLIX) to help investors capture the shift in the retail landscape.
The Decline of the Retail Store ETF provides daily short exposure or -1x to the new Solactive-ProShares Bricks and Mortar Retail Store Index, which is comprised of traditional retailers and equally weights components. The fund holds companies that include department stores, supermarkets and sellers of apparel, consumer electronics and home improvement items, such as retailers like Barnes & Noble, The Gap, Macy’s, Kroger and Best Buy, among others.
“The Solactive-ProShares Bricks and Mortar Retail store Index has an innovative design that separates bricks and mortar retailers – those that rely principally on revenue from their physical stores – from teh rest of the retail sales industry,” according to ProShares. “This is the first public securities index specifically designed to bring these legacy retailers together so that they can be treated as a unique investment opportunity.”
The Long Online/Short Stores ETF is a type of long-short strategy and the first ETF to track the potential growth of online companies while benefiting from the decline of bricks and mortar retailers. Specifically, CLIX reflects the new ProShares Long Online/Short Stores Index, which combines a 100% long portfolio of on-line and non-traditional retailers with a 50% short position in bricks and mortar retailers.
“The long/short structure also reduces equity market exposure and potentially results in less volatility than long-only equity strategies,” according to ProShares.
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The recent tossup in the retail segment and rise of online shopping may be the start of a long-term trend. Proshares pointed out that by 2020, online sales growth is expected to outpace brick-and-mortar retailers by 3-to-1 and make up $4 trillion of the global retail market. Amazon sales in North America have quintupled since 2010, expanding to $80 billion from $16 billion. Online shopping now makes up 10% of global purchases, which leaves a lot of room for growth. For 2017 alone, forecasts calculate a 35% rise in online sales.
Meanwhile, market observers also predict that almost 25% of the country’s shopping malls could close down within the next five years due to falling foot traffic. The lessening reliance on traditional stores has hurt profit margins, which are approaching lows not seen since the 2008 recession. At least 30 major retailers have already declared bankruptcy over the past three years, with almost two-thirds of them in 2017 alone.
Consumer spending habits are also a large contributor to the demise of traditional brick-and-mortar stores. More U.S. consumers, especially millennials or three out of four young shoppers, prefer buying experiences, such as travel and dining, over material goods.
For more information on the retail sector, visit our retail category.