'There's going to be a lot more carnage' but bricks-and-mortar are not going away: Strategist

Simeon Hyman - ProShares Global Investment Strategist joins Yahoo Finance to discuss the rise of e-commerce amid the pandemic and examines whether or not the trend is here to stay.

Video Transcript

JULIE HYMAN: Like many other big tech shares, we are seeing things related to e-commerce sell off today. Shopify, for example, is one of the companies that has done very well this year that's now selling off. But all of this a reflection of how well e-commerce has been doing this year with many, many people stuck at home.

Simeon Hyman is joining us now, ProShares Global Investment Strategist. He's joining us from New Jersey. And Simeon, you-- your firm has some ETFs that have been tracking this e-commerce trend. And we are seeing a pullback today, although it seems like people are still shopping online. That's not necessarily reflecting any kind of change in behavior.

SIMEON HYMAN: No, that's right. We have our ticker ONLN, which is long online retail, and CLIX, which is actually long online and short brick and mortar. And the news flow here, aside from the market news, we had the e-commerce report that came out just over a week ago, and it told us mostly stuff that you would expect.

Online retail increased well over 30%, where the total retail bucket in Q2 dropped almost 4%. The share of the pie of online retail of the entire retail universe in the US went from 11% to 16%. So that's a hockey stick, yet think about that. With lots of brick and mortars still closed, you're still only up to 16% of retail being transacted online. So it's still an incessant trend, but much earlier, as you and I've talked about, than people think.

DAN ROBERTS: Simeon, Dan Roberts here. To stick with that, the 16%, I've mentioned that in a couple of my recent stories, sure, it's like, oh, only 16%, but everyone sees where the trend is headed. Within that, a number of big, big chains in their Q2 earnings reports shared, you know, blowout numbers for how much their e-commerce sales rose, you know, 100%. Best Buy, 240%. And as you mentioned, none of that is too surprising.

But the question I'd ask you-- some people, their retort has been, well, what if that's just a pandemic bump? What if that's temporary? Of course, the rise in e-commerce and sort of the gradual death of brick and mortar is probably going to continue post-pandemic. It was already happening pre-pandemic. But you know, that lion's share being e-commerce, do you see that as a current pandemic-only trend? Or is that a danger in thinking that because it's probably where things are headed, even once the pandemic is behind us?

SIMEON HYMAN: No, look, this is a-- from our perspective, an acceleration of a trend that's just going to keep on going. You know, habits are hard to break. The-- the piece of retail that I like to point to that's sort of a tell here is grocery.

Food and beverage jumped 100% from Q1 and 200% year-over-year. You know, once you order your groceries at home a few times and the melons and the avocados are OK, you're probably going to keep doing it. So clearly, an acceleration of a trend.

You also brought up something else, because the names that you listed were all legacy brick and mortar players growing their online business. And two things, I would say, as important there. First, there are lots of legacy brick and mortar players that aren't doing that, so we could make a long list of those. But second, also, it's important to note that even the legacy players who are growing their online businesses, sometimes it's at the expense of profitability.

We know in one of our recent pieces that over the last decade Walmart's margins have been shrinking as they've become the second biggest online retailer. And Amazon's margins have almost doubled. So the challenges are there even for those who sort of successfully pour it over their businesses. The challenges for those who don't who obvious and the bankruptcies have been piling up.

MELODY HAHM: Another existing reality even prior to the pandemic was the sort of barbell effect when you look at shopping malls, right? The lower chain kind of discount, you know, thrifting sort of experience with the TJs of the world have done well, and the class A, the sort of places where it's experiential, and you like to kind of hang out there.

But those class B malls in the middle, what do you anticipate going forward? As we see the Simons of the world trying to scoop up Lucky Brands and Brooks Brothers, will that save these stores? What happens to the foot traffic because, ultimately, these are not desirable places to shop?

SIMEON HYMAN: Yeah, and ultimately, the brick and mortar that will survive is the stuff that is experiential and has a-- a true omni-channel synergy with the online presences. And brands are important. You know, you mentioned Best Buy, you know, look at the roadkill of the rest of the brick and mortar electronic retailers. Brands can survive, and I go back to that number, it's still only 16%.

So there's going to be a lot more carnage. You know, the US is far more over-stored than the rest of the world. But some brands will survive, and clever formats in brick and mortar space are going to be around for a long time. But going from-- from 16% even to 25% or 30% over the next several years is-- is quite likely, so there's still a lot of pain to be had, particularly in those B malls.

JULIE HYMAN: Simeon, very, very quick follow up. Does that 16%-- it includes cars, yes? I mean, if you exclude cars, isn't that number a lot higher?

SIMEON HYMAN: I don't know off the top of my head, but it doesn't move the dial that much.

JULIE HYMAN: Got it.

SIMEON HYMAN: We're still pretty low, even if you-- and-- and by the way, I'm always hesitant. I go back to groceries, but also just about anything that you think can't be done online the-- the technology follows it.

And I would also mention one other thing. Putting this in the tech bucket is interesting because actually, if you look at ONLN, the companies that are in it are all in consumer discretionary. The only reason I bring that up is that, you know, as people are thinking about positioning their portfolios going forward, and let's say they're watching what's going on and considering maybe reorienting their core portfolio to something a little bit more center of the style box, then if you're thinking about satellite positions, it isn't necessarily about sectors.

If you think online retail makes sense because of those secular trends that are likely to go beyond the pandemic, just remember, that's actually not the tech sector. So you kind of got to either get something that labels itself online retail, or you have to dig under the hood and think about putting it together yourself. But to some extent, some of those sector models are a little bit kind of from a previous ballgame.

JULIE HYMAN: Simeon, thanks. Simeon Hyman is ProShares Global Investment Strategist. Appreciate it.