Chiara Ferragni's Amazon Fashion campaign.

Despite recent optimism from the management of Macy’s Inc. and J.C. Penney Co. Inc., rumblings in the market from analysts — and even a few retailers — suggest a retail environment that will continue to struggle.

But there are opportunities as a new real estate report released today suggests shifts in the retail sector will result in higher transactions volumes in the second half.

For now, retailers face a consumer who seems to shop for fashion apparel only when it is drastically reduced, if at all. When she shops, it continues to be at off-price brands such as TJX Cos. and Ross Stores Inc., which is why many department stores are rolling out these formats. Moreover, sales continue to shift online, with Amazon gaining market share each month.

Shoppers are in a permanent state of frugality, and the impact is taking a toll on retail profits. For mall-based operators in particular, the outlook appears dim. Moreover, a decades-in-the-making retail store bubble may not be popping, but it is slowly deflating.

“For Macy’s and other department stores, the share of market has gone from 10 percent in the Eighties to barely 1.7 percent now, and they can’t react quickly enough as the ground shifts under them, because of their installed base — whether owned or 25-year anchor leases,” explained Craig Johnson, president of Customer Growth Partners. “Unlike their inline specialty store mall co-tenants with a few months left on a five-year lease, they can’t just leave the keys in the mailbox and walk away, so they are having a hard time balancing capacity with the shrinking demand.”

Johnson said “other parts of the retail sector are also over capacity, but lease-centric chains can rebalance supply and demand easier, either with lease expiries, or Chapter 11 if they have too many leases with too many years on them.”

On a call with investors last week, Urban Outfitters chairman and chief executive officer Richard Hayne noted that the “retail industry is going through a rather painful period of rationalization. Rarely have I read so many negative articles about our industry. Unlike much of what has been written, I don’t believe the customer is the problem; I think our customer is in relatively good shape.”

Hayne said the real culprit is the inventory of stores, especially in the U.S., which he said was “overstored and overstocked.”

“We have approximately 10 times more retail space per capita than our European counterparts, and more direct-to-consumer choices, too,” the ceo added.

The “direct-to-consumer choices” include online sites from brands as well as pure-play e-commerce retailers. And then there’s the “Amazon effect,” which has changed the retail landscape.

In her most recent research note, Jharonne Martis of Thomson Reuters, noted that if April retail sales came in “stronger than expected…where are shoppers spending their money?”

“According to the Commerce Department, they are heading for the auto showrooms despite gasoline price gains going into the Memorial Day weekend,” she said. “Online sales are also taking a bigger piece of the pie, confirming that retailers should be concerned about competition from Amazon.”

Still, there is opportunity in the market. In JLL’s just-released U.S. Investment Outlook report, the retail real estate sector “will have strong 2016 after slow start.” The firm said the transactions and growth will shift toward secondary markets.

“Despite the economy’s ups and downs, retail transaction volumes were strong in secondary markets where population and job growth continued to fuel demand in the first quarter of 2016,” JLL said in its report adding that the retail sector “will likely not see as much volatility as the year progresses while these burgeoning markets and new supply open opportunities for capital that remained dormant in the beginning of the year.”

Dave Monahan, managing director at JLL, said the U.S. “economy experienced volatility in the beginning of this year, and the retail sector reacted in line with trends seen in the country’s macroeconomic environment.”

“But on the whole, we expect volumes to remain healthy as investment flows adjust to changing dynamics in gateway and secondary markets,” Monahan added.

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