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Retail faces ‘double-edged sword’ in internet age: JPMorgan Analyst

Retail faces ‘double-edged sword’ in internet age: JPMorgan Analyst

The future of retail requires fewer stores and a greater online presence, but the road to that reality is fraught with danger, JPMorgan retail analyst Matt Boss said Friday.

Boss spoke at the end of a rough few weeks for retailers, during which weak guidance and middling earnings hammered many stocks in the sector.

On Thursday, shares of Gap (NYSE: GPS) initially popped on news it would close 75 stores. That sentiment is evidence that the U.S. is still oversaturated with bricks-and-mortar retail, Boss said.


The right footprint for department stores like Nordstrom (NYSE: JWN) and Macy (NYSE: M)'s is roughly 200 U.S. locations, preferably at the top 200 to 300 class-A and class-B malls, he said. Smaller stores like Gap with many more locations still have much further to cut, he added.

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"I think that's the future. That's where the productivity is," he told CNBC's "Squawk Box."

While retail consultants once projected one-third of retail activity would move online, many now believe a 50-50 split is more realistic, Boss said.

The problem is retailers only convert about 2 percent of online browsing to sales, compared with nearly 20 percent for in-store shopping, he said. Further, the most profitable visit for many retailers comes when shoppers go to a store to return an online purchase, opening the opportunity for additional in-store sales, he said.

But retailers face a "double-edged sword" because while in-store experiences are key to driving sales, rising wages create a challenge to getting staffing levels right, Boss said.

Yet another challenge, according to Boss: Nearly 70 percent of the brands these retailers sell overlap with those featured on Amazon.com (NASDAQ: AMZN).

"Really, their key differentiation is private label exclusives. Some of these private label brands don't mean anything to the consumer, so how do you strike that balance?" he said.



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