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One investor's theory as to why traditional retail is losing market share at 'unheard of levels'

Stephanie Landsman
One investor's theory as to why traditional retail is losing market share at 'unheard of levels'


The environment for traditional retailers may be much more troubled than Wall Street thinks, according to Bespoke Investment Group.

The firm is out with a new report which shows online retailers are "sucking share" from traditional retailers at an "incredible" rate.

"It's like nothing we've really seen before," said the firm's co-founder Paul Hickey recently on CNBC's " Trading Nation ." "A third of the growth in retail sales over the last 16 months has been in online sales. The group itself only accounts for ten percent of sales. So it's just taking in dollars at a much faster rate."

In the government's latest monthly retail sales report that came out Friday, Hickey points out online sales showed their 22nd straight month of gains. To put it in context, he says the longest win streak prior to this for online sales was the electronics and appliances sector during the last housing peak. It clocked in at 13 months in a row.

"This is unheard of, the levels we've seen," added Hickey. "We're just seeing online retail take share from just about every sector. Only food and restaurants are one of the few sectors which doesn't see that."

Traditional retailers closed out the week in the red. The SPDR S&P Retail ETF (NYSE Arca: XRT) fell nearly three percent this week, its worst weekly performance in seven weeks.

The bearish activity among traditional retail was triggered by disappointing April retail sales numbers.

Plus, struggling department store J.C. Penney (NYSE: JCP) sank to an all-time low following its quarterly earnings report. Even though earnings per share came in better than expected, same-store sales fell by 3.5 percent versus the 0.6 percent FactSet forecast. The department store, along with Macy's (NYSE: M) and Nordstrom (NYSE: JWN), has seen its market cap shrink this week.

"People are changing their habits rather than going to the store. They're buying things online, and then they're using the time they save for experiences," said Hickey.

"The U.S. economy is over-stored. When you combine square footage of U.S. retail space to other countries, the U.S. just towers over everybody else. I think there could conceivably be more room for pain," he added.

Although it's still too early to call this Armageddon for retail, Hickey isn't the only expert observing carnage in the retail area. Former J.C. Penney CEO Allen Questrom, who also ran Federated Department Stores, Barney's and Neiman Marcus, is speaking out.

Questrom, who's often credited with turning around J.C. Penney in the early 2000s, said it's not just online sales and the number of malls hurting brick-and-mortar stores.

"We go through these cycles, and obviously this has been a challenging period. It's the Internet. It's understanding the millennial customer. It's the off-price stores," Questrom told CNBC on Friday. "When you have a difficult time like this, it's when people come up with the best ideas."



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