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Department Stores’ Fashion Market Share Is Pulling a Disappearing Act

In 2003, department stores in North America commanded 47 percent of apparel, footwear and accessory sales. By 2024, they are set to account for just 13 percent, half of their current market share, according to a UBS research note from analyst Jay Sole.

The Great Recession’s arrival in 2008 began speeding up a channel shift that was years in the making. As unemployment soared and consumers took a hit to their finances, many flocked to e-commerce to hunt down the best deals and stretch their shrinking dollars. Now, the coronavirus pandemic is once again pressing fast-forward on consumer behavior, forcing shoppers to rely almost exclusively on digital commerce channels while COVID-19 kept fashion and footwear stores closed.

Sole’s report cited Euromonitor data indicating that the percentage of apparel and footwear sold online had risen to 25 percent in North America in 2019 from just 3 percent in 2005. And UBS Evidence Lab market research from March notes that more than 80 percent of U.S. consumers bought either apparel or footwear online at least once in the past 12 months. EMarketer expects U.S. e-commerce to leap 18 percent this year, accounting for 20.1 percent of the retail market, gas and auto sales notwithstanding.

Sole believes consumers won’t be quick to unlearn their newfound reliance on e-commerce.

“We don’t believe the shift to online shopping will reverse when the pandemic ends because consumers are developing new shopping habits,” Sole wrote, noting that the longer the pandemic goes on, the more ingrained the new shopping patterns become.

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Technology, he added, will fuel the online boom with ramped-up social commerce capabilities on Instagram and Facebook, consumer-friendly digital payment options, and 5G-enabled shopping experiences. Plus, Sole believes Amazon will continue to fine-tune its operating model and further move shoppers away from brick-and-mortar stores.

Sole’s outlook was more optimistic for other players in the sector. Online pureplays are expected to see their market share rise to 19 percent in 2024 from 9 percent last year, while off-price retailers will gain 3 percent market share from 2019 to reach 22 percent in three years’ time.

Besides the department store sector, shopping malls could be among the biggest losers. As consumers shift to online shopping, they no longer need the mall as the de facto fashion aggregator for one-stop shopping. UBS has also predicted that more than 24,000 apparel and accessories stores will close over the next five years, fast-tracked by COVID-19.

With seismic shifts underway in the retail landscape, brands like Nike, Levi’s, Skechers and Canada Goose can no longer rely on department stores such as Nordstrom, Macy’s or Kohl’s to drum up traffic and brand awareness, Sole said in describing the “Go It Alone” process that has successful softlines players taking customer-facing initiatives into their own hands.

Separately, UBS downgraded Macy’s and Kohl’s to a “Sell” rating, furthering the narrative around the department-store sector’s decline. Sole also made a point of noting Macy’s real estate would likely be leveraged for cash as the company tries to fix its business, and that would shift a larger percentage of its enterprise value to debt from equity.