Retail’s robust recovery from the pandemic is one of the factors that influenced UBS to revise its store closures forecast. The firm now projects that U.S. retailers will shutter 40,000 to 50,000 stores over the next five years, 80,000 fewer than it had forecast 21 months ago. U.S. retail sales will grow about 4% annually for the next five years, according to UBS. E-commerce will continue to gain importance; the firm forecasts e-commerce will build its share of total sales to 25% by 2026, up from 18% in 2021.

Clothing and accessories retailers, consumer electronics chains and home furnishing sellers are among the segments that will need fewer physical locations. These three will close a cumulative 23,500 stores by 2026, according to UBS. On the flip side, the firm expects Target, Walmart and other general merchandise chains to drive store openings during that period. It also expects auto parts retailers to show significant real estate growth.

The supply of retail space is shrinking in relation to the U.S. population. Retail developers have shown restraint in recent years, and landlords have converted existing outdated retail properties into other uses even as the population continues to expand. According to UBS, the amount of U.S. shopping center space per household in 2021 was 58 square feet, down from 62 in 2010.

U.S. Retail Sales Continue to Grow but at the Slowest Pace Since May 2020

U.S. retail sales growth slowed in March due to rising inflation and the lack of stimulus checks from the government in consumers’ pockets. Retail sales less auto and gas increased by 4% from March of last year on a seasonally adjusted basis, according to the U.S. Census Bureau. That represents a massive slowdown in growth and the lowest since May 2020. At the same time, the U.S. inflation rate rose to 8.5% in March, marking the biggest annual gain since December 1981.

Nonetheless, retail sales continued to climb. Sales in the furniture and home furnishings segment rose 3.6% year over year and 28.5% above March 2019. Sales in the sporting goods, hobby, book and music store segment declined 5.1% year over year, dropping for the first time since May 2020. Even so, sales in that segment were up an impressive 42.2% against March 2019, suggesting that customers continue to spend on leisure, outdoor and fitness activities.

Department stores showed strength, too. Sales in the segment grew by 7.4% year over year in March, on top of the previous March’s 26.5% increase.

The segment showing the most weakness was electronics and appliances. Sales declined by 9.7% year over year and slipped 0.6% from March 2019.