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Retail faces ‘double-edged sword’ in internet age: JPMorgan Analyst

The future of retail requires fewer stores and a greater online presence, but the road to that reality is fraught with danger, JPMorgan retail analyst Matt Boss said Friday.

Boss spoke at the end of a rough few weeks for retailers, during which weak guidance and middling earnings hammered many stocks in the sector.

On Thursday, shares of Gap initially popped on news it would close 75 stores. That sentiment is evidence that the U.S. is still oversaturated with bricks-and-mortar retail, Boss said.


The right footprint for department stores like Nordstrom and Macy's is roughly 200 U.S. locations, preferably at the top 200 to 300 class-A and class-B malls, he said. Smaller stores like Gap with many more locations still have much further to cut, he added.

"I think that's the future. That's where the productivity is," he told CNBC's "Squawk Box."

While retail consultants once projected one-third of retail activity would move online, many now believe a 50-50 split is more realistic, Boss said.

The problem is retailers only convert about 2 percent of online browsing to sales, compared with nearly 20 percent for in-store shopping, he said. Further, the most profitable visit for many retailers comes when shoppers go to a store to return an online purchase, opening the opportunity for additional in-store sales, he said.

But retailers face a "double-edged sword" because while in-store experiences are key to driving sales, rising wages create a challenge to getting staffing levels right, Boss said.

Yet another challenge, according to Boss: Nearly 70 percent of the brands these retailers sell overlap with those featured on Amazon.com.

"Really, their key differentiation is private label exclusives. Some of these private label brands don't mean anything to the consumer, so how do you strike that balance?" he said.

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