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As stock market volatility rocked retail stocks over the past week returns are still down about 1.1 percent year to date for the S&P Retail Industry Index while major indices have shed about 5 percent. But two reports today remain bullish on the retail sector overall — although the perspectives come with a few caveats.

Analysts at Telsey Advisory Group noted a strong U.S. economy, labor and housing market bodes well for consumer spending while Deborah L. Weinswig, managing director at Fung Global Retail & Technology, said amid ongoing store closures and robust online sales, physical retailing has a clear role to play as long as it meets the demands of shoppers.

Much of the volatility on Wall Street is centered on fears of inflation.

Dana Telsey, chief research officer of the firm that bears her name, said the “Fed is working to steer the economy to maintain high levels of employment with a stable pricing environment, which the Fed has targeted at a 2 percent inflation rate. After speaking with industry leaders and economists, our overall take is that the consumer landscape is well-positioned.”

Telsey said the overall economic picture is bright. “Low unemployment and rising wages are continuing their pace into 2018,” she noted. “These two factors are leading to increased consumer spending, which continues to gravitate toward services.” She also said hotel occupancy rates “are at or near all-time record highs, yet, there has been an average decline in room rates. The impact of the sharing economy and new business models, such as Airbnb, may be a contributing factor.”

The analyst also said that one notable change on the consumer behavior front “is that lower-income groups are now spending and helping to drive retail sales higher.”

Other trends that help support a strong retail market includes higher wages for entry-level positions, a more educated workforce, and a tight housing market with higher sale values and higher median prices.

In Weinswig’s report, the analyst said e-commerce is reshaping the industry and expects it “to continue to grow its share of retail sales in the coming years as it peels away substantial volumes from store-based retailers, mainly in non-food categories. In the U.K., the online channel is already relatively mature, and we estimate that it captures about half of all spending on consumer electronics and about a quarter of all spending on clothing and footwear.”

In a bold assessment of online spending, Weinswig said “e-commerce could realistically capture 40 percent or more of all clothing and footwear sales in both the U.S. and the U.K. in the 2030s.” But she was quick to note that it depends on product type and method of purchase.

Regarding the latter, she said the type of purchasing will fall into three buckets: planned, function and “higher value” where consumers “face high-cost barriers when purchasing a low-value item online for home delivery, and those barriers may increase as more retailers focus on making e-commerce profitable.”

“This leaves physical stores to fill in the gaps for consumers whose shopping mission would not be best served by e-commerce,” Weinswig said. “Specifically, we see opportunities for physical stores that focus on one or more of the following propositions: convenience, collection, discount or destination.”

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