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Moody’s: Stores Still Needed as Online Traffic Grows

Online apparel sales are expected to rise 16 percent by 2016.

Don’t rule out the need for physical stores even as more retailers increase their online presence.

This story first appeared in the July 2, 2014 issue of WWD.  Subscribe Today.

That’s the conclusion of Moody’s Investors Service, which said it expects online sales of apparel and footwear, as a percent of total retail sales, to rise to about 16 percent by 2016. Online retail sales in general are expected to grow 14 percent annually over the next two years.

The ratings agency, which concluded that the online presence for U.S. companies has further to grow, also determined that e-commerce sales are a longer-term credit-positive for U.S. retail.

Moody’s reasoned that a viable online channel is becoming more critical for brick-and-mortar retailers, and that it is also a cost-effective way of maximizing existing physical locations, as well as to leverage distribution capability.

That means mass store closings are unlikely as retailers will need physical store locations so shoppers can see the products they have researched online. Store networks, Moody’s said, will remain a “crucial link in the online logistics chain.”

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Store networks enable ship-from-store capability, as well as allow shoppers to buy online and pick up at a nearby store. Moody’s said additionally that as the sector moves to even faster delivery times, a store network has the potential to provide same-day delivery as an option.

Separate from the Moody’s report, this is a shift that many consumers have already seen in recent years as retailers from Neiman Marcus to Sears have tried to up their customer service levels to remain competitive and maintain market share.

Scott Tuhy, vice president and senior credit officer at the corporate finance group at Moody’s, said that apparel retailers that have a brick-and-mortar network have a competitive advantage over others. “Consumers can touch and feel the product, as well as try it on,” he said, adding too that anyone ordering online can do returns at the store. Conversely, Tuhy said that someone who tries on an item and buys in the store can go and “buy more online.”

And while one might think an older demographic is more likely to prefer brick-and-mortar, Tuhy said even the Millennial consumer, who is more adept with mobile, often prefers a physical store. “Think of fast-fashion retailers. They like to go to the store to find the latest offering,” Tuhy said.