The retail landscape has changed drastically in recent years. During the pandemic, the e-commerce sector has grown at an unprecedented scale, while many brick-and-mortar retailers were forced to shutter during extended periods during lockdowns. In this segment of Backstage Pass, recorded on Nov. 19, Fool contributors Toby Bordelon, Rachel Warren, and Nicholas Rossolillo discuss whether in-store retail is dying, or actually rebounding.
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Toby Bordelon: We hear a lot about the death of retail, especially in the pandemic. But contrary to what you might expect, as it turns out, things are looking good for retailers. This year, we've got chains like Macy's, manufacturers like Ralph Lauren reporting profits exceeding 2019 levels. They are doing better than they were pre-pandemic.
An article I saw on the Wall Street Journal today talked about how even supply chain issues might actually be helping, because what it's doing is reducing inventory. You can't get it as quickly, so your inventory is low, demand is high, which means you don't offer discounts.
You don't offer promotions as much. Why would you when you're going to sell out anyway? More goods are being sold at full retail price, this is leading to higher profits for storage and manufacturers. Here's my question guys. Why do you think that is? What's going on here?
Did the pandemic make actually save retail rather than kill it? Is this a short-term quirk or maybe this is a sustainable trend in terms of we're just not going to see as many discounts going forward? Where do we see bricks-and-mortar retail going over the next year versus online? Do you have any thoughts on that? What do you think? Let's start with you, Rachel.
Rachel Warren: Yeah, I thought this was really interesting. I was surprised to see these numbers because I still maintain that online spend will continue to outpace brick-and-mortar retail over the long term. I think e-commerce is the retail of the future. But I don't think brick-and-mortar retail is dead.
One of the things I was thinking of besides the fact that these companies don't have to discount items because demand is so strong and people are concerned about items being off the shelves before they get a chance to get them in their shopping carts. I almost wonder if after being quarantined at home for so long, if people want to go out again and be, "inconvenienced to go and shop in-store again." I think about that.
I wonder if that's potentially driving some of these short-term trends as well, or maybe something is sold out online, but they think, oh, maybe I can go and find in-store seat. Wonder if it's a range of these factors. I feel like it might be too soon to say whether the pandemic saved brick-and-mortar retail. I think at least for the near-term, especially with the supply chain issues we're seeing, this is something we're going to continue to see.
But I just found some interesting statistics I wanted to share from the National Retail Federation. They're predicting the highest holiday retail sales on record. In late October, they forecast that holiday sales during November and December will grow between 8.5% and 10.5% over 2020 to be as high as $859 billion.
The National Retail Federation also released a separate forecast earlier this year, stating that retail sales are expected to exceed $4.44 trillion in 2021. I think you're seeing what we were talking about earlier. People are spending more than ever before. There was this huge lag in consumer spending at the height of the pandemic.
I think part of what we're seeing now, particularly with this rush in brick-and-mortar spending is a recovery from that. But I do also wonder if people are enjoying getting out of their houses and maybe going out for an hour or two to run those errands rather than just ordering online like we did during the pandemic. What about you, Nick? What do you think?
Nicholas Rossolillo: Yeah, definitely. A lot of people getting out of the pulse again, I do think it's short-term effect though. Rachel, I'd wholeheartedly agree. E-commerce will continue to outpace traditional retail for the foreseeable future.
As far as these profits go, I don't think it's the death of brick-and-mortar, but I'd definitely think the record profits are a short-term effect. Let's face it, retail is a cutthroat industry and I think it should be because consumers want choice, lots of choice, too much choice. I think Amazon proved that model. I think eventually, market forces will take over again. These record profits will come back down to a low single-digit profit margin.
We're going to continue to see fragmentation of that too I think, with e-commerce. I believe sites like Etsy and Shopify will continue to do really well as small businesses and entrepreneurs take share from these big retailers.
But ultimately I think it's like computing. At some point, there is a piece of physical device or physical property that handles the computing. E-commerce is like that too. There's a property somewhere involved with delivering your stuff at some point. I think this is an evolution of commerce, of retail that is just continuing to take place. Physical shopping of some sort will always have a place.
Toby Bordelon: Yeah, I think I agree with that. I think physical retail is going to be here forever. It's not going to go away. I think it will just adapt. It's going to get better, more use for people. I think one thing that this is maybe telling us as we come out of the pandemic and stores rack up these profits is that you actually don't have to be Amazon to thrive in retail. You can do it without being Amazon. They're not going to destroy everybody. You just got to compete well.
You got to find a way to do it, but clearly, you can do it. Other people are making money besides Amazon in retail. I think maybe. I don't know. I think maybe hopefully there are some sustainable elements to this idea of less discounting.
Maybe we see some rethinking of inventory and supply chain going forward that leaves some more efficiency, I would hope, less waste.
We'll see how that goes but I definitely think you're going to see some of this. It's not going to be I think an exact return to where we were. I think you're going to see some impact from what we experienced one way or the other.