Is the Retail Bubble Bursting? One Company Seems to Think So

retail bubble

Would you rather go to the store and buy something or purchase it online?

While many Americans still enjoy the experience of actually walking into a store and buying an item, more customers enjoy the convenience of shopping online. Whether it’s on ($AMZN) on the online storefront for a physical location, shopping online is quick, easy, and doesn’t require leaving the house.

For brick-and-mortar retail stores, the convenience of online shopping is cutting into their bottom line. Fewer shoppers are going into stores and buying things. Retail chains with online storefronts are seeing increasing percentages of their business done online, while their hundreds of locations lag behind. Decades-staples like Macy’s ($M), JCPenney ($JCP), and Sears ($SHLD) are struggling to survive and closing hundreds of stores.

Unfortunately, things aren’t going to get better any time soon, according to one CEO. In fact, we might be witnessing the burst of the retail bubble, not unlike the 2008 housing crisis. What does this mean for retail companies, and how do they stay afloat?

Richard Hayne, the CEO of Urban Outfitters, recently shared his vision of the retail market with the company’s investors.

Hayne claims that online shopping is overtaking physical stores and decreasing foot traffic. He believe America is “oversaturated with retail space,” with much of that space dedicated to apparel stores. An incredible number of stores popped up in the last twenty-plus years, more so than Hayne believes was actually necessary. According to him and other industry experts, many places are shutting down and will continue to do so as demand for online shopping increases.

Why are people leaning more towards online shopping? Because of convenience.

Online apparel retailers let shoppers buy an item, have it shipped to their home in a short amount of time, and return or exchange it if it doesn’t fit. Conversely, physical retailers require one to actually commute to a store, browse racks in hopes of finding an item, and spending time trying it on, waiting on line, and slowly browsing. This is a slower and more arduous process than flipping through a few pages in an app and calling it a day.

Retailers are trying to lure new and existing shoppers with more experiences and collaborations.

Uniqlo and H&M, two trendy “fast fashion” chains that are doing rather well now, collaborate with popular fashion houses, designers, and artists. These collaborations lure in new customers who wouldn’t have shopped there previously. Other stores, like Best Buy and GameStop, are bringing in customers with product demos, stores-within-a-store, and exciting new marketing ploys that increase foot traffic.

Retailers need to utilize mobile and online trends in their stores if they want to survive.

If the in-store experience were even nearly as convenient as buying online, more people would shop in physical stores. That’s why retailers are offering more in-store pick-up options, mobile ordering, personalized in-store shopping, and several other features that make the shopping experience more pleasurable. Retailers need to have an online storefront to survive — even if it means cannibalizing their in-store sales — but featuring their online features in-store and vice versa could help bring in new and repeat customers. Otherwise, they could end up closing more stores.

Should you invest in retail? Like Richard Hayne said, the retail market reached an point of oversaturation and is now course-correcting itself with store closures and layoffs. If you think the retail market will get to a stable point in the future and thrive once more, you should do your research and consider investing in retail ETFs sometime soon as their value decreases. They could, in fact, increase exponentially in the near future if the market turns around. If you don’t think that will happen, simply invest elsewhere.