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Fitch: E-Commerce Will Take Bigger Share of Retail Market in 2016

The struggle has certainly been real for brick-and-mortar stores, with traffic down 11 percent in October and more than half of retail executives betting on the format flopping in the future.

Now ratings agency Fitch Ratings says e-commerce could provoke further suffering for stores as it cuts into sales growth. In-store sales are expected to grow just 1.5-2 percent next year, falling short of the 3 to 4 percent projected for the overall retail sector.

“The growth of e-commerce will be the great differentiator for many retailers—an opportunity for some and a threat to others,” Fitch senior director David Silverman said. “It has fundamentally changed the way retailers think about their operations, investments and branding.”

E-commerce will likely account for 15 percent of total retail sales and 50 percent of growth in retail spending in 2016, according to Fitch, a fact that will continue to erode in-store traffic and spending. Retailers will have to invest in real estate, product distribution, inventory and IT infrastructure to stay afloat, and margins could take a hit in the near term.

Most of the pressure will fall on department stores, potentially leading to further store closures.

The new year will also see mid-price apparel brands getting stuck in the middle of the price spectrum as consumers seek value at the lower end and meet their aspirations at the high end, according to Fitch.

Low-priced general merchants will continue to pose a threat unless they are armed with considerable retail depth, convenience or customer loyalty.

Acquisitions and buybacks will drive earnings per share growth since today’s retail market demands inorganic sources of growth, Fitch said.

“Fitch’s retail sector outlook remains stable, with continued wage growth constraints or an unexpected economic downturn being the two largest threats,” the agency noted in a statement. “However, even in those scenarios mass downgrades in Fitch’s portfolio would be unlikely, given most retails have enough cushion in their current ratings to withstand a downturn.”