While the recent bankruptcy filing of fast fashion retailer Forever 21 has reignited fears about the collapse of the in-store shopping experience, on-line consumers generally continue to spend at a solid rate.

Recent Chapter 11 filings of iconic stores such as Barney’s, Gymboree, Diesel and Payless ShoeSource have installed jitters about the health of the U.S. economy – especially since consumer spending accounts for more than a third of gross domestic product (GDP).

However, the electronic transformation of the traditional brick-and-mortar retail landscape has essentially reshaped spending behaviors, with mobile ‘swipe-shopping’ increasingly replacing aisle and rack-browsing, while compensating for less cash in physical registers.

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As mobile phone users have gradually penetrated and saturated the U.S. telecom market over the past decade, internet-based purchases appear to have risen in tandem.

An analyst at Statista observed that mobile devices have been gaining in importance in the shopping process.

During a February 2019 survey of U.S. mobile owners, Statista noted that 57% of respondents stated that they had used a mobile retail app to look for more information about a product or a service, and a further 51% had purchased something via mobile.

During Q1’19, 28.2% of all digital e-commerce dollars in the U.S. were spent via mobile devices, Statista added, with mobile retail spending amounting to almost US$39bn during that period.

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The convenience of mobile shopping, or ‘m-commerce’, has led to intensified, but many failed efforts, to lure customers to brick-and-mortar shops.

According to McKinsey & Company, many apparel companies “can’t keep pace with digital competitors or the customers whose behaviors and expectations are evolving faster than ever.

“Six out of ten people now use at least one digital channel in their shopping journey for an apparel garment, which has major implications for physical stores.”

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McKinsey added that in 2017 and 2018 alone, U.S. retailers vacated a quarter of a billion square feet and announced more than 6,000 store closures in August 2019 year-to-date.

The empty retail spaces certainly haven’t helped real estate investment trusts (REITs) such as Simon Property Group (NYSE: SPG) – which owns malls where store closures such as Forever 21 are growing more frequent.

By late August, shares of Simon Property Group plunged nearly 23.7% from its latest 52-week peak set in December 2018. The REIT was also down over 2% intraday Tuesday.

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Stay on the Line

Indeed, on-line retailers seem to be further fueled by the gaps left emptied by store closures such as Forever 21, as well as other major retailers, including Sears (OTCMKTS: SHLDQ), Kmart and Toys “R” Us.

In fact, U.S. retail e-commerce sales for the second quarter of 2019 rose 4.2% over the prior quarter to US$146.2bn, according to the Census Bureau.

Total retail sales for Q2 2019 were estimated at around US$1.4trn, an increase of 1.8% compared to Q1, while the e-commerce estimate, which accounted for 10.7% of total sales, surged 13.3% in Q2’19 year-on-year.

Against this backdrop, the Amplify Online Retail ETF (Nasdaq: IBUY), which offers equity exposure to global online retailers with at least 70% of their revenues from on-line sales, has outperformed the SPDR S&P Retail ETF (NYSEARCA: XRT), with three-year returns of 19.17% compared to 0.64%, respectively.

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IBUY includes among its top holdings internet-based mail and shipping service Stamps.com (Nasdaq: STMP), travel tech company Expedia Group (Nasdaq: EXPE) and eBay (Nasdaq: EBAY), while XRT holds firms such as Game Stop (NYSE: GME), Foot Locker and Urban Outfitters (Nasdaq: URBN).

Virtual Markets

E-commerce companies, such as craft product supplier Etsy (Nasdaq: ETSY), have generally benefited from the increasing engagement of on-line shoppers and have been exploiting advanced new technologies to maintain or increase gains.

As of the end of Q2’19, for instance, Etsy said it migrated most of its systems to Google Cloud, including its machine learning efforts, as part of a two-year plan expected to complete in early 2020. The move comes amid an uptick in visitors, with active buyers and active sellers rising to 19.3% and 17.7% year-over-year, respectively.

Etsy generated US$181.1m in total revenue in Q2’19, a rise of 36.8% year-over-year, driven by sales growth in both its marketplace and services. Net income over the same period was US$18.2m, with diluted earnings per share of US$0.14.

The revenue spike also falls amid Etsy’s aim to make free shipping a core part of its shopping experience. In July, it began providing its sellers with the means to help them guarantee free shipping on orders of US$35 or more to U.S. buyers.

Emerging Threats

Overall, while the strength of the U.S. retail sector has remained resilient despite the rolling headlines of bankruptcy filings and restructurings of several top-name firms, certain of the Trump administration’s policies, underscored by the trade-related tariffs on Chinese imports, may now be posing more adverse impacts on U.S. retailers, which, in turn, could affect consumer sentiment, householding spending and, ultimately, overall economic growth.

Recent downbeat data have surfaced in the Conference Board’s Consumer Confidence Index, which posted a slight decline in September to 125.1 from 134.2 in the prior month, as well as the University of Michigan’s steeper drop to 89.8 in August – the largest monthly decline since December 2012.

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U-M economist Richard Curtin, director of the surveys, said that the recent decline is due to “negative references to tariffs, which were spontaneously mentioned by one-in-three consumers.”

He continued that unlike concerns about the fiscal cliff, which arose in the December 2012 period and were “promptly resolved, Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs.”

According to the recent U-M surveys, personal financial expectations weakened, with households who expected financial gains falling to 36%—the lowest percentage since July 2017—from last month’s 44%. Expected annual gains in household income fell to 1.8%, down from July’s 2.3% and last August’s 2.4%.

The falloff in expected income gains was widespread across socioeconomic groups, with the largest monthly decline among those under age 45, falling to 3.3% from last month’s 4.8%.

Jobs, the other pillar of strength, also displayed some cracks in August, as consumers expected slight increases rather than declines in the national unemployment rate during the year ahead.

The darkening outlook could inspire further rifts in the retail landscape, as on-line shoppers wax more cautious about their spending in general.