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How Bricks Compete With Clicks in a New Retail Era

Some retailers are better equipped to fight the Amazon threat.

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While evaporating margins and shuttering stores at retail mainstays such as Sears, Bon-Ton, and Toys 'R' Us in the wake of Amazon’s (AMZN) rise have led some investors to believe that brick-and-mortar retail’s decline is as pervasive as it is inevitable, we have long believed that not all sectors are equally vulnerable to the digital juggernaut. We continue to think that home improvement, aftermarket automotive parts, off-price apparel, and discount/dollar stores are well defended. We believe retailers can capitalize on immediacy of need, customer proximity, difficult-to-replicate business models, pricing dynamics, and the store experience to ward off threats, even as e-commerce growth remains robust.

We see the home improvement and aftermarket auto-parts stores as among the best protected, capitalizing on product characteristics and customer demand for services best delivered in store, such as buying advice or virtually immediate access to a vast array of items. Discount/dollar stores and off-price apparel sellers have more focused protections (convenience and small formats for the former; a hard-to-digitize treasure hunt for the latter), but we still expect companies in both sectors to transcend the threat.

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Zain Akbari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.