Amazon Vs. Retail ETFs: Not So Easy

November 29, 2017

E-Commerce Not A Threat

But what about the fact that e-commerce is growing? Doesn't that pose a threat to traditional retailing, especially during the holiday season?

It's true that the annual Black Friday buying binge has increasingly become a digital stampede rather than a physical one. Data show shoppers spent a record $5.03 billion online this Black Friday, a 16.9% year-over-year rise, and the largest amount of Black Friday digital dollars spent on yet. Foot traffic in brick-and-mortar stores, meanwhile, declined an estimated 4-6%.

And where are those online shoppers going? Amazon. According to a study by Slice Intelligence, Amazon alone accounted for 43% of all online sales last year, and drove more than half (53%) of all growth in e-commerce.

Initial estimates suggest Amazon, by itself, could account for as much as 44% of 2017's holiday shopping dollars. It's no wonder many retailers think of Amazon as one of the four Horsemen of the Apocalypse (see: "These 4 Stocks Are Breaking The Market.”)

That said, however, holiday shopping represents only 30% of retailers' total annual revenues, and in the grand scheme of things, Black Friday purchases, whether made online or in store, are a drop in the bucket: Last year, shoppers dropped roughly $656 billion over the six-week holiday shopping season. Compared to that, $5 billion spent in one day online barely registers.

Furthermore, e-commerce still represents less than 10% of all retail sales, according to statistics from the Census Bureau of the U.S. Department of Commerce. Online sales on a percentage basis are rising, but on average, more than 90 cents of every dollar is still spent in a physical brick-and-mortar store.

Retailers are struggling right now, not because online stores are treading on their turf, but because they overexpanded their brick-and-mortar presence and took on billions of dollars in highly leveraged debt that's now come due.

Dwindling disposable income from the middle class consumer—retail's most reliable customer base—just isn't enough to support poor business practices any longer. If anything, the rise of deep-discount e-shopping is a symptom of the retail apocalypse, not its cause.

ProShares Retail Doomsday Play

On Nov. 14, ProShares rolled out two ETFs specifically designed to capitalize on the brick-and-mortar doomsday: the ProShares Decline of the Retail Store ETF (EMTY) and the ProShares Long Online/Short Stores ETF (CLIX).

EMTY provides equally weighted, inverse exposure to retailers with significant brick-and-mortar presence, including department stores, supermarkets, clothing stores, consumer electronics and home improvement stores.

CLIX takes the idea one step further, offering 100% long exposure to online/nontraditional retailers and a 50% short exposure to traditional retailers with brick-and-mortar stores.

The two funds, which both carry expense ratios of 0.65%, are the first to attempt to explicitly capture retail's brick-and-mortar collapse. But it remains to be seen whether CLIX or EMTY can achieve the same lofty gains as Amazon—or at least fare better than other retail ETFs.

It may come back to this: Everybody buys online, but they don't buy everything online. Not even close. And as long as that remains true, ETFs that proclaim the death of brick-and-mortar are putting the horseman before the cart.

Contact Lara Crigger at [email protected]

 

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