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The end of brick-and-mortar retail?

An analysis undertaken by the Centre for Retail Research has forecast a very grim and short-lasting existence for many companies in the brick and mortar retail industry. Amongst other findings, it has estimated that by 2018, total store numbers in the UK will fall by up to 22%.

In addition to the industry’s demise, around 316,000 people could join the unemployment line and 164 large or medium-sized companies will go into administration. Meanwhile, the share of online retail will increase from 12.7% (from 2012) to 21.5% by between 2018-20, according to the Retail Futures 2018 analysis.

Whilst the statistics presented in the report relate only to the UK, Australia could be facing the same reality. Although many of Australia’s primary retailers, such as Myer Holdings (ASX: MYR), David Jones (ASX: DJS), Harvey Norman (ASX: HVN) and JB Hi-Fi (ASX: JBH) have begun to adapt to changing consumer trends, it seems that online retail is still the way of the future.

As time becomes more and more important to consumers in their busy lifestyles, the convenience of going online to purchase items seems much more straightforward than a trip to the shopping centre. The Internet presents consumers with a much larger array of options and products from abroad, whilst costs are minimised in not having to operate physical stores – thus, lower prices for consumers.

The analysis found that retailers with a strong web presence (as the companies mentioned above are now trying to push forward) need only 70 physical stores in order to have a strong national presence, compared to needing around 250 in the mid 2000s. Again, whilst this number reflects conditions in the UK, it seems rational to assume the number of physical stores needed to have a strong national presence in Australia would be even lower, considering the size of our population.

Foolish takeaway:

Although the share prices of many of Australia’s larger retailers have significantly increased over the past 12 months, they are still swimming in the deep end. By increasing their online presence, they can save an enormous amount on costs, reach out to more consumers and thus regain some of the dominance they once had in the industry.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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