There’s no denying that some malls and other forms of brick-and-mortar retail experienced a renaissance following the darkest days of the coronavirus pandemic. That’s understandable because consumers wanted to get out of the house, even if just for a casual shopping trip.
On a related note, a future in which there are no malls or physical retail stores is highly unlikely, but the reality is that the number of such venues is slated to dwindle mightily in the coming years. That’s one more sign that the future of consumer buying, particularly on the discretionary goods front, is very much online.
Predictably, there are investment implications, and some exchange traded funds are up to the task, including the ARK Next Generation Internet ETF (ARKW). As its name implies, ARKW isn’t a dedicated consumer cyclical fund, but it is levered to the theme of rising online retail spending. That trend is alive and well and could gain momentum at the expense of physical retail stores.
Over the past year, well-known retailers shuttered 2,000 stores and, in a recent report, UBS predicts that number will soar to more than 50,000 by the end of 2027.
“The pace of store closures is set to accelerate due to the combination of a slowdown in consumer spending, a reduction in the availability of credit, and a rise in the penetration of e-commerce,” wrote UBS analyst Michael Lasser.
The actively managed ARKW possesses multiple avenues for participating in the growth of online retail. For example, Shopify (NYSE: SHOP), a major provider of e-commerce platforms and technology, accounts for 6.21% of the ETF’s roster. Block (NYSE: SQ), which is often viewed through the lens of fintech, is a player in the buy-now-pay-later (BNPL) landscape. BNPL fits seamlessly into online shopping. Block is ARKW’s fourth-largest component at a weight of 7.26%.
While consumer spending is forecast to slow as 2023 progresses, ARKW remains a credible “shift in retail spending” play because of the types of land-based stores that are most vulnerable to elevated closure totals. Those include apparel, consumer electronics, and home goods — all genres that consumers are highly comfortable accessing online.
Additionally, smaller retailers need to up their e-commerce games to ward off competition from larger rivals. If they prioritize that approach, ARKW holding Shopify stands to benefit.
“Smaller retailers are also facing more competition from e-commerce players. While this threat isn’t new, it is intensifying. Lasser estimated that e-commerce penetration—or the percentage of consumers who have made an online purchase in the past year—could rise to 26% by 2027, up from 20% currently,” reported Sabrina Escobar for Barron’s.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.